3 Charts That Show Why Sprint Corp (S) Stock Looks REALLY Grim

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To say Sprint Corp (NYSE:S) was one of 2016’s pleasant surprises would be a considerable understatement. The 132% gain Sprint stock dished out over the course of the prior year was a complete shocker, considering the company was neck-deep in debt and was relatively impotent in terms of prepaid and postpaid subscriber growth for the bulk of 2015.

3 Charts That Show Why Sprint Corp (S) Stock Looks REALLY Grim

Yet, there it is … S stock is well into new 52-week high territory.

The $64,000 question: Is the rally supported by the company’s plausible future results? Or, is Sprint stock only being propped up by hope and a healthy short-covering rally? These three graphical representations of the company’s financial statements — over time — will tell a big part of the tale.

Sprint Stock: Income Statement

You have to squint to see it, but it’s there. That is, when Sprint got serious about winning market share a couple of years ago by vowing to cut competitors’ bills in half, sales began to tick higher. Gross profits started to edge a little higher as well, as cost cuts were part of that plan — they had to be.

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What didn’t happen, though, was anything close to an end to the constant net losses once the rise in depreciation expenses was factored in. The nagging interest expense [more on that below] also grew gradually, as debt expanded slightly over the two-year span in question.

Perhaps the most frustrating aspect of this graphic isn’t that it deteriorated over time. It’s that nothing about it changed despite a major overhaul effort by CEO Marcelo Claure since he took the helm in 2014.

Sprint Stock: Cash Flow

One of the frequent bullish arguments Sprint’s supporters (and presumably owners of Sprint stock) often make is that if nothing else, the company is operationally cash-flow positive. Those arguments are correct, too, though they’re also incomplete.

While Sprint has been and continues to be operationally profitable, the only reason it has been is that depreciation — which is added as an operational credit — has been so remarkably high.

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Regardless, the benefit of depreciation is offset when you move to investing cash flow lines. Capital expenditures and other investment expenses for the past couple of quarters are still almost as significant as the benefit of depreciation, and there’s no wiggle room. Remember, we’re still starting the clock on the cash flow statement, so to speak, with a habitual net loss every quarter.

That said, the bulk of the impact any cash flow problems might be spurring largely show up on the balance sheet.

Sprint Stock: Balance Sheet

It’s perhaps the balance sheet that should vex owners of S stock the most.

Not unlike the income statement and cash flow statements, it’s not a radical change over time in these numbers that should spook investors. It’s the lack of change over the course of the past two years. Long-term debt hasn’t budged, and could have. Total assets haven’t budged, and arguably could have (even if only to sell some of them to whittle down the debt). The only change of significance is the slight uptick in current liabilities, which puts a strain on the company’s liquidity picture.

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This should be particularly frustrating to owners of S stock that were expecting much better liquidity following maneuvers that began as far back in November of 2015.

That’s when Sprint entered into an agreement with then newly formed Mobile Leasing Solutions to remove the liability of leasing phones to its customers from its books to Mobile Leasing Solutions’ books.

It doesn’t appear to have mattered … at all.

Bottom Line for S Stock

With the perspective of these pictures — which plot the real numbers of Claure’s efforts — more than a few Sprint stock holders may now be wondering if they’ve been duped. Little has actually changed, except for the rhetoric. If the turnaround hasn’t taken hold yet, will it ever?

As if the charts themselves weren’t troubling enough on their own, here’s another potential wrench in the works: The “cut your bill in half” promotion that pulled in so many new customers and slightly boosted revenue even if it didn’t really boost the bottom line? The first of those customers are now seeing their deals expire, and they’re not supposed to be allowed to renew the offer.

If that’s the only reason those deal-chasing consumers were with Sprint in the first place (and for many of them, it was the only reason), S stock could have an even rougher 2017 than the lethargic numbers charted above might suggest.

These charts could look a lot different a year from now, unfortunately for the worst.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/01/3-charts-sprint-corp-s-stock-looks-really-grim/.

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