Will You Answer This Company's Call?
Kathleen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After AT&T and Verizon, Sprint Nextel Corporation (NYSE: S) is the third biggest wireless telecom company. It was not long ago that Sprint was heavily weighed down by debt issues. Sprint valuations were so poor that some analysts predicted that the company might file for bankruptcy and become a total loss for shareholders. Several strategies have helped Sprint stay in the communications game. Their repertoire of tricks includes unlimited data plan offers and the managerial decision to include highly rated smartphones, like the iPhone, on its prepaid plans. Sprint has moved out of the danger zone, and is gradually transforming from a struggling company to a business entity that some analysts consider as a legitimate investment. From their standpoint, a call to invest in Sprint may be worth answering.
Sprint vs. Industry Leaders
When it comes to customers, Verizon Communication (NYSE: VZ) leads AT&T (NYSE: T) and Sprint. Verizon has 111.3 million customers, while Sprint is a distant third with 56 million subscribers. Verizon has high margins and strong revenues from consumers, while AT&T is next, and Sprint is far behind. It’s possible that Sprint is still considered a good investment by some because of its $20 billion consolidation plan with Japan’s wireless telecom giant, Softbank. Considering its turnaround plans, Sprint is predicted to appreciate in price. At about $44 and $34 per share for Verizon and AT&T, analysts consider the two telecom stocks to be trading near the high end of their fair values.
A Solid Plan
At a recent Goldman Sachs conference, Sprint’s CEO, Dan Hasse, hinted that Sprint was ready to be a major player in the expected acquisition and merger plans within the telecom sector. Sprint has snapped up 50.8% majority shareholding in Clearwire Corporation (NASDAQ: CLWR). Clearwire is another wireless telecom firm comparable to Sprint. But prior to Sprint owning a majority stake in Clearwire, Mount Keller Capital was the largest shareholder with a 7.3% stake. Clearwire recorded the highest sales growth in the last five years with 65.7 percent, compared to Verizon, AT&T, and Sprint. Sprint also offered to sell a 70 percent stake to Softbank. Softbank will help the new entity compete better with AT&T.
Sprint's Track Record and Outlook
Since 2007, Sprint’s earnings have been inconsistent. The telecom company’s revenues have peaked and dipped intermittently. In 2009, Sprint grossed $32.26 billion in revenues. In 2010 and 2011 an increase of 3.4 percent in revenues was recorded, compared to 2 percent reported for AT&T. Sprint further increased its revenues by 1.4 percent in the first quarter of 2012 while AT&T reported a decline of 0.2 percent. Although it is still in the negative, Sprint earnings per share increased by 16.7 percent to -$1.44 in 2012.
Sprint is still favored by some investors as long as its services and earnings continue to improve. For now, however, it is still riding the coattails of industry leaders like Verizon and AT&T. The telecom company has yet to consistently hold its own among the steep competition in the communications industry. So while some investors have good reason to believe in the company’s potential, others find it advantageous to let the call to invest in Sprint go to voicemail.
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