Stock Pick: Sprint (S)
Why?
1. Cheap buy. Down to 8.70 from 52-week high of $23.42.
2. Intrinsic valuation range from 16-22.
3. 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:
o Tightened credit standards
o Network & customer improvements
- Network performance at CDMA & IDEN is performing well
o Critical b/c biggest r ...