Sprint Stock Pick
Essay title: Sprint Stock Pick
Stock Pick: Sprint (S)
Cheap buy. Down to 8.70 from 52-week high of $23.42.
Intrinsic valuation range from 16-22.
Comcast wants to own a large wireless company. (What Wall Street missed)
Comcast wants to own a large wireless company
Lacks cellular offering while AT&T and Verizon are coming after cable case
Upgrade infrastructure to increase broadband speeds
As wireless connection speeds get faster through WiMax and 4G networks, cable may lose some more customers who will turn to over-the-air broadband. Sprint is a big hedge against this.
Can afford Sprint
Sprint:
Mkt cap fallen to $24 billion, less than 1 x revenue
Last quarter, $400 million in operating income on revenue of $10 billion
$21 billion in debt (not substantial for size)
Why Sprint hurting?
Net gain of 500k subscribers through wholesale channels, but offset by net losses of 683k post-paid subscribers & 202k pre-paid users.
Root problem: Was unwilling to bring former Sprint & Nextel biz, CDMA & iDEN together
CDMA performed well
IDEN: underinvested in both marketing & iDEN network improvements. Iden customer base = ’04 size.
What’ll happen?
Sprint will solve problems:
Tightened credit standards
Network & customer improvements
Network performance at CDMA & IDEN is performing well
Critical b/c biggest reason customers leave
Adding back push-to-talk service on CDMA network
Job reductions of 4k; result -> reduce labor costs by $700-800mm by ‘08
Close 125 company-owned stores
Long-term advantages:
Size: 2x T-Mobile
Independence from land-line carrier
Deploy WiMax, next gen standard -> bolster its data capabilities, more