It’s Time for Investors to Disconnect Sprint Corp Stock

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Sprint stock - It’s Time for Investors to Disconnect Sprint Corp Stock

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Sprint Corp (NYSE:S) finds itself actively struggling for its survival. A change in the CFO position this month left investors scrambling. Now the company faces mounting debts, a costly 5G rollout and dwindling options to substantially raise its user base or its prices. Given numerous negative factors, investors need to hang up on S stock sooner rather than later.

Sprint Stock Remains Weak Competitively

Sprint remains a weak company in one of the country’s most competitive industries. Competition with the likes of Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), and T-Mobile US Inc (NASDAQ:TMUS) has left the company with dwindling market share and weak pricing power.

The easy solution to their troubles was to sell out to a competitor. However, the proposed merger with T-Mobile fell through in early November. As I indicated in an earlier article, Sprint has limited options to compete as an independent company.

Other than making Michael Combes the new CFO, little has changed. The struggle for Sprint stock to maintain positive earnings per share (EPS) continues. On an annual basis, EPS has remained negative for several years. Consensus estimates predict a positive EPS in 2020, but much can change between now and then.

Debts and Costs Keep Mounting

Mr. Combes also faces the challenge of managing a $37 billion debt load when Sprint has a market cap of about $22.75 billion. Most important, Sprint needs to spend an estimated $25 billion on top of its general capital spending.

The company needs to spend this money upgrade its network to 5G to hold out any hope of remaining competitive. The $37 billion in debt crowds out much of the financial room Sprint needs.

Unfortunately for both Sprint and its competitors, prices for phone service have only fallen over the last few years. Also, Sprint currently ranks as the fifth best carrier in the country, according to Tom’s Guide. Given the company’s reputation, price increases will most likely send its customer base to a higher-ranked carrier.

As a result, Sprint has traded under $6 per share since Sprint and T-Mobile called off the merger. Over the last few years, Sprint has lost considerable market share. Its share of the market peaked in 2013 at 18%. As of the third quarter of 2017, that share fell to 12.7%. Sprint hopes to offset these losses with increased pricing power.

Still, Don’t Forget the Spectrum

Still, for all of the talk about networks, prices, and market share, Sprint still owns a valuable asset it is not yet fully monetizing, its spectrum. Sprint owns spectrum in the highly-valued 2.5 GHz band which they acquired from the now-defunct Clearwire Corp in 2013.

The company paid $3.5 billion for the spectrum at the time. Estimates place the value of this spectrum at between $40 billion and $115 billion.

In the wireless world, Sprint owns valuable real estate that both increases and limits its options. The financial realities facing Sprint will make monetizing their valuable wireless real estate difficult. However, other options could be employed. Leasing spectrum could serve as a revenue source.

Also, Sprint could do the equivalent of what Rite Aid Corporation (NYSE:RAD) is doing in the pharmacy industry—real estate sales. Like Rite Aid, Sprint could sell some of the assets it can’t utilize to competitors. Such a deal would raise the cash needed to pay debts.

However, unlike Rite Aid, Sprint needs to serve the entire nation. Hence, Sprint would likely need to remake itself as a spectrum holding company, generating cash off leases as other businesses utilize the spectrum. Still, without more clarity on where Sprint goes with its spectrum, holders of Sprint stock will likely not benefit.

Final thoughts on Sprint stock

Hence, with weak pricing power, mounting debts and losses, and dwindling market share, investors should avoid Sprint stock. The company faces decreasing market share and finds itself unable to make profits or pay down its mounting debt load. On top of that, Sprint faces an estimated $25 billion in additional spending merely to upgrade its network.

One factor that can save the stock from bankruptcy is its portfolio of valuable wireless spectrum. Still, management has not yet revealed how it will utilize this valuable wireless real estate. Due to increasing negative factors with Sprint stock, investors are better served looking elsewhere for profitable investments.

As of this writing, Will Healy is long RAD stock.


Article printed from InvestorPlace Media, https://investorplace.com/2018/01/s-stock-investors-disconnect/.

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