You Better Believe Sprint’s Turnaround Story
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Welcome to the ‘turnaround corner’, an incline very familiar with names like Research In Motion (NASDAQ: BBRY), Nokia, Alcatel Lucent, FairPoint Communications and Sprint (NYSE: S). All these distinct turnaround stories have been widely documented throughout last year and continue to attract attention even at the outset of this year. Different analysts have demonstrated varying sentiments toward each individual turnaround story. Nonetheless, there is a predominant bullish outlook on Sprint. Its undisguised dominance relative to its peers in the ‘turnaround corner’ tells a story of a stock that is latched onto an unwinding road to outperforming.
The daylight between Sprint and turnaround peers is compelling
There is some real daylight between Sprint and its turnaround peers. Despite the fact that most turnaround stories are panning out in a desirable fashion, Sprint seemingly appears to be the only one which has managed to actually raise its head above the water, so to speak. Comparing Sprint’s revenue growth for 2012 with that of Research in Motion, Nokia, FairPoint and Alcatel, it comes of note that Sprint is the only one with a positive growth rate. In simple terms, Sprint was the only one that managed to increase its sales throughout 2012.
The chart below offers a richer insight on the same:
As shown, Sprint’s top line grew at a rate greater than its peers. Nokia and Research in Motion suffered the biggest dips; attributable to their inability to present products that could gnaw into Apple’s and Google’s share in the smartphone segment.
While a lot of expectations are pegged onto Research in Motion’s BlackBerry 10 launch slated for late January, I am convinced that Research in Motion, albeit promising, has a long way to go as far as rivaling Sprint goes. What’s more is the fact that, unlike Sprint, Research in Motion has to worry about existing competition and the possibility of new entrants into the smartphone market (there is unending debate that Amazon will make an in on the market).
As far as a turnaround is concerned, Sprint’s story couldn’t go any better. Despite the high capital expenditure traceable to the high priority Network Vision Project, I am inclined to believe that this telecom player will fully restore bullishness this year.
Network Vision Project provides sure leeway into Verizon and AT&T’s closely guarded turf
In as much as it is worthwhile to take a look at Sprint in contrast to its turnaround peers, it proves more useful if you compare it with its direct competitors. Despite being bigger, Verizon (NYSE: VZ) and AT&T (NYSE: T) have already started feeling the pressure of Sprint. The latter is not only putting the mishaps of the ill-famed Nextel deal in the rear view, but it is also making notable advances in the wireless segment.
I believe that the wireless segment will be the cash cow in every telecom player’s business in the coming years. Consolidating a concrete foundation right now is the best way to go. This is exactly what Sprint is doing. Although its roll out isn’t as expansive as that of Verizon and AT&T, it is impressive because of the profound impact that it has had on Sprint’s top line.
Sprint’s wireless platform (excluding Nextel run-off) managed to grow third quarter revenue at a rate of 15 percent year-over-year. Even if you include the Nextel run-off, Sprint’s wireless platform still managed to record a revenue growth rate of 7 percent last year. This figure is a few percentage points shy of Verizon’s 7.3 percent growth rate and relatively higher than AT&T’s 6.6 percent growth rate (all growth rates exclusively focus on wireless platform). This suggests that Sprint’s wireless platform is doing much better than that of the bigwigs in the industry. I believe that the viral growth of Sprint’s wireless platform is attributable to the aggressive slant that the telecom player has taken with regard to 4G LTE. It managed to increase its site locations from a paltry 600 in Q1 2012 to 2300 in Q3 2012. Analysts argue that these sites could reach close to 12000 by the fall of Q1 2013. This exponential increase in Sprint’s 4G rollout exclaims its untold yet obvious desire to bridge the gap between itself and bigger competitors.
In conclusion, I believe that Sprint is a good choice for a canny investor looking to cash in big. Its turnaround story is getting rosier by the day, market conditions continue to brighten in light of expected product launches in the year, and most importantly, its price is cheap relative to its competitors. Sprint is a buy.
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