Can The iPhone 5 Save Sprint?

| About: Sprint Corporation (S)
This article is now exclusive for PRO subscribers.

Sprint (NYSE:S) is the least attractive asset for a long-term investment among the major wireless carriers. I believe current shareholders and interested investors should consider Sprint as a short-term investment, a short sell or short squeeze while hedging interests in one of the two major telecoms with more promising outlooks or one of the device manufacturers available at a comparable price. Sprint is more than a year behind its peers in developing its LTE network, as more devices are transitioning into making 4G standard issue. Sprint is also losing customers during its slow Nextel divestment to establish LTE while adding customers at a slower rate than its peers. Sprint's lopsided portfolio focused on wireless has virtually no wireline services compared to the two major carriers.

Sprint's main competitors are the major US telecoms, AT&T (NYSE:T) and Verizon (NYSE:VZ). It's also worthwhile to consider the metrics of device manufacturers like Nokia (NYSE:NOK) and Research in Motion (RIMM). Both these devices manufactures have similar stock prices to Sprint and are looking for a rebound in the market in 2013, as well. Nokia seems to be the preferred manufacturer for Microsoft's new Windows mobile OS. Nokia will be available through both AT&T and Verizon while Research in Motion plans to release a new Blackberry in the first quarter of 2013 that will be carried by Verizon. As popular as the Apple (NASDAQ:AAPL) iPhone 5 will be, AT&T and Verizon will still have several competitive devices that will carry either the Windows or Android OS. This is another major reason why the iPhone may not be enough to save Sprint in time.

AT&T's market cap is around $220 billion, Verizon's is around $129 billion, while Sprint's is only $16 billion. Sprint, Nokia and Research in Motion all have stock prices currently below $8 while AT&T and Verizon are above $32 per share. Sprint's debt-to-equity ratio is around 2.3. Verizon's is around 1.41 while AT&T's is around 0.62 and Research in Motion's is close to zero. Sprint's annualized dividend is around $0.10, while Verizon's is $2.00, AT&T's is $1.76 and Nokia's is around $0.26. Sprint's price-to-sales ratio is around 0.46 while Verizon's is 3.41 and AT&T is 2.09.

Research in Motion's price-to-sales ratio is 0.26 and Nokia is 0.24. Research in Motion has had 43% growth in sales over the past 5 years while Sprint's is the lowest among these aforementioned firms with a 3.86% deficit over the past 5 years. However, Sprint did have 6.4% sales growth in the past quarter, YOY, the highest among these firms; AT&T was around 0.25% and Verizon was around 3.69%. Research in Motion had a 42% sales deficit in the past quarter, YOY. Verizon has the highest EPS of $1.00; Sprint's is the lowest at around -$1.28.

Sprint's beta score is slightly above one while Research in Motion and Nokia are closer to 1.5. Sprint has the highest average daily volume of around 63.5 million shares, Nokia is close behind at around 56.8 million shares. Nokia's stock is has increased over 12% in the past month but is down YTD through mid-September. Sprint's stock is down 2% over the past month but has increased over 124% YTD through mid-September. Sprint's stock price has increased by around 26% since its last earnings release.

Sprint's recent earnings release detailed some of the headwinds it's currently facing as it tries to sustain business until it establishes an LTE network and turns a profit from the four year agreement with Apple. Total second quarter net operating revenues increased to $8.84 billion from $8.3 billion, YOY. Net loss increased to $1.37 billion from $847 million, YOY. Operating expenses increased to $7.39 billion from $6.99 billion, YOY. The wireless division accounted for $8.06 billion of operating revenue while wireline was only $995 million. Wireless revenue increased while wireline revenue decreased.

The wireless division represented 88% of Sprint's consolidated earnings in the first half of 2012. These earnings have been declining due to subscriber losses from the Nextel divestment. Sprint expects wireless earnings to decrease in 2012 when compared to 2011. Sprint currently has around 56 million wireless subscribers, a little more than half of AT&T's 105 million total. Sprint's churn rate is around 1.79% for total retail postpaid and around 3.53% for total retail prepaid. Cost of services increased 2% in the second quarter and 7% for the first half of 2012. Its wireless revenue decreased 11% and data revenue decreased 15%, YOY in the second quarter. Moody's outlook for Sprint is a review for a downgrade, both the S&P and Fitch have negative outlooks for Sprint.

There are around 4.4 million subscribers left on Nextel. Sprint was able to recapture 431,000 during the second quarter, about 60% of those that deactivated the service. Sprint is faced with competitors like AT&T and Verizon penetrating the subscriber base during the slow divestiture of Nextel. Sprint expects its recapture rate to decline as it progresses to full divestiture by mid-2013. Sprint acknowledges that moving to the single network platform and carrying the iPhone will significantly reduce operating income and increase cash outflows in the near term. Sprint is looking towards the long term in reducing operating costs and increasing its subscriber base from each venture.

Sprint has a higher churn rate than its rivals. Due to its small LTE network and lack of tiered data pricing, Sprint will be benefit the least in the near term from carrying the iPhone 5. Its only advantage is the unlimited plan package. However, both major telecoms dropped this plan because it is the least profitable. Sprint is facing downgrades due to its financial obligations while it's being outpaced by its peers and the industry.

Sprint will barely be able to capitalize on its 4 year agreement with Apple; this may prove to be a significant hindrance on earnings more than anything. Throughout the next few years, Sprint's liquidity will be under significant pressure due to its investments in Apple's iPhones and LTE while it leaves earnings on the table in order to establish itself as a viable competitor to Verizon or AT&T.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.