Sprint Corp Will Break Out Sooner Than Later (S)

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Sprint Corp (NYSE:S) has become a battlefield stock again. S stock is a battlefield company, because since July 2013, when Masayoshi Son’s Softbank completed its $21.6 billion takeover of a majority share in the former Sprint Nextel, it has gone nowhere fast.

S Stock: Sprint Will Break Out Sooner Than Later

Marcelo Claure became CEO in August 2014 and since then, Sprint stock has been on a roller-coaster, falling to as low as $2.66 this year before staging its recent comeback. Its total return to investors since Son’s takeover has been about 1% per year

Sprint as a company has had several false dawns this century, and every speculative run has been followed by a plunge to new lows. Many analysts ask, why should this be any different?

As our Brian Nichols wrote recently, Sprint is not showing a profit, it’s burdened by huge debt, and much of that debt is off the balance sheet.

So — I can’t possibly be recommending S stock, even to speculative buyers, can I?

Yes, I can.

The Good News at Sprint

It is true that Sprint is highly leveraged and unprofitable. But recent financial trends are in its favor — gross profits have quadrupled under Claure and there is even some operating income.

Then there are things Sprint has been doing behind the scenes, from a technology standpoint, that have people who follow such things closely pretty excited. For starters, S is moving toward Time Division Duplex, or TDD technology, which Wells Fargo analyst Jennifer Fritzsche says will give it advantage as networks begin to support 5G speeds.

The company has been touting its new technologies, aimed at bringing more service off cell towers and onto telephone poles to anyone who will listen, and COO Gunther Ottendorfer even gave an “ask me anything” presentation on its technology, using Reddit, this month.

Second, Renato Derraik, hired this year from McKinsey as an expert on front-line sales, has been using big data cloud technology to transform how the company sells through its website and on the phone. He says he is already getting results, testing various pitches quickly in an A/B fashion, and implementing what works immediately.

Pre-orders through Sprint for the iPhone 7 this year were four times higher than last year and the company has hired Paul Marcarelli, the Verizon Communications Inc. (NYSE:VZ) spokesman during its “can you hear me now” campaign, to tout its system performance metrics

Respected telecom analyst Jeff Kagan is convinced there is something real here going on for Sprint stock: “Sprint is both winning new customers and hanging onto existing customers,” he writes. “Sprint has re-entered the race” and is “doing better quarter after quarter.”

Lots of Upside for S Stock

The company’s challenges remain real, but even a little operating profit could go a long way for Sprint stock investors.

Right now, Sprint is the only major U.S. carrier whose stock is selling at a discount to sales. The company is valued at under $26 billion, and had $32 billion in revenue last year. Rival T-Mobile US Inc (NASDAQ:TMUS), by contrast, has a $38 billion market cap on the same level of sales. Even matching its sales with equity would deliver a 20% gain at this point.

The current earnings estimate for S stock is modest: a loss of 7 cents per share, and revenue of $7.98 billion when it next reports results on Oct. 24. Beating those numbers would give Sprint stock momentum for the fourth quarter.

This is a speculative issue, and analysts have a right to be skeptical, but there are reasons you can hear the sound of a turnaround for S stock, and it may be worth betting on.

Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time.  Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he did not hold a position in any of the aforementioned securities.

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Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/s-stock-sprint-break-sooner/.

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