Sprint Corp (NYSE:S), which lost one-third of its value over the last year, got a quarter of that loss back after its third quarter beat analyst estimates. That doesn’t mean that Sprint stock is a lock by any stretch of the imagination.
Net income from operations came in at $104 million, but the company reported $7.1 billion, $1.79 per share, of net income based on benefits from the Trump tax cut.
Analysts were unimpressed by the results. Deutsche Bank dropped its price target onSprint stock to $5 per share, 50 cents higher than where it opened for trade Feb. 8. Inexplicably, the analyst had a buy rating on the shares.
Bleah Looks Great for Sprint Stock
The bleah quarter for Sprint stock translated into a great quarter for Softbank, which claimed an 11-fold growth in profit on the strength of Sprint’s lower tax bill. Reporting on Sprint turned sharply positive as well even though very little of the tax benefit is in cash. Instead, the new rules will allow Sprint to use past losses to offset taxes on future profits.
But that can’t mask the stubborn reality. Softbank bought the third-largest wireless carrier in the U.S. It now has the fourth-largest carrier, having been passed by T-Mobile US Inc (NASDAQ:TMUS), which has now more than doubled Sprint’s market cap.
Sprint rejected a merger with T-Mobile in November , demanding to control the resulting company, a crazy demand given the circumstances.
While Sprint’s announcement on its results heralded growth in postpaid accounts of 184,000, that was half what it did last year, and the worst performance among the four leading wireless companies during the crucial Christmas selling season.
5G Costs and Sprint Stock
Sprint now faces the daunting costs of upgrading to 5G service as a stand-alone company. Its plan has been to use telephone poles instead of cell towers for upgrades, but it is running into fierce local opposition.
Sprint has aggressive 5G plans and thinks it can get the technology into operation in 2019. It has what it considers a capital efficient method for doing this, using 2.5 GHz spectrum and self-configuring small cells it will call “magic boxes.”
In exchange it hopes to get $70-80 per month on unlimited data plans, up from $50-60 per month currently. But how is that possible when every other mobile carrier is doing the same thing, delivering more bits and services in a highly competitive market?
Retreat Sold as Advance
Its new arrangements will include services like asset tracking, smart buildings, forms that can be filled out on mobile phones and cloud services, operating as a sub-contractor to Harris Corporation (NYSE:HRS).
Meanwhile, competitors AT&T Inc. (NYSE:T) and Verizon are prime contractors on the $50 billion, 15-year Enterprise Information Systems contract, replacing an older arrangement called Networx under which Sprint was a prime contractor.
The Bottom Line on Sprint Stock
Softbank bought control of Sprint promising to transform the U.S. wireless market as it did Japan’s, where it became the leading carrier by market share after buying out the local operations of Vodafone Group plc (NYSE:VOD) in 2006. Its lead there did not last, however. By 2016 it was again third in the market, with a market share of 25%.
That’s the way it is with Softbank, and CEO Masayoshi Son. Big talk, big plans, big money, lots of flash but results that don’t live up to expectations in the long run. Sprint stock is just par for the course.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenh[email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in T.