Sprint's Expansion Efforts Could Push It Higher
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sprint Nextel (NYSE: S) has had a rather large presence in the news lately as a result of its plans to expand. Reactions have been a little mixed to this move, but I think Sprint is acting wisely and should gain strength in the industry. The stock is up 43% from the start of 2012, and news has been good for the phone company. Keep in mind, Sprint was down near $2 at the beginning of the year and was beginning to be counted out by analysts and insiders. It's a far cry away from its days near $20 (2007) but Sprint should keep profits coming in for the third and fourth quarter of 2012. This should help reverse its -1.11 EPS and restore some faith in the industry.
Sprint is looking to become a stronger competitor in the market for 4G services, as it plans to bring 4G LTE to Dallas, San Antonio, Kansas City, Houston, and Atlanta on July 15. This is only one part of the development, however, as Sprint also plans to improve its current 3G services in these cities. This is taking place through the Network Vision program, and it appears to have great potential to benefit Sprint. The company will remain behind AT&T (NYSE: T) and Verizon (NYSE: VZ), as they both offer LTE in many cities already. AT&T offers LTE in 41 cities, and Verizon offers LTE in 304 cities. Sprint has the "only truly unlimited data plan for smartphones," however, so this will help it compete with its stronger competitors.
And compete it will need to. Not only is Sprint substantially smaller than AT&T and Verizon, its less than $10 billion market cap is paltry compared to AT&T's $207 billion and Verizon's $126 billion. Its two competitors here are also doing quite well. Both are sitting right near their respective 52-week highs, and both companies have a strong outlook for the rest of 2012. The industry, needless to say, is strong, and Sprint needs to make sure it can benefit.
Unlimited data plans may have additional power for helping Sprint at the moment, since Verizon recently got rid of its unlimited data plans when it introduced its Share Everything plans. This has led customers to react poorly to the new shared data plans, as they will raise costs for some people. Verizon is getting rid of these plans for a reason though, as unlimited data plans have proven to be unprofitable. One has to wonder how beneficial this "advantage" will truly be for Sprint. It can use its unlimited data plans to draw in some customers for the time being, but it may eventually have to get rid of them, as well, unless it wants to suffer from the problems these plans can bring.
This is not the only reason for skepticism, as some investors and analysts show concern over Sprint's current attempt to expand through its Network Vision program. This expansion holds promise for improving the company, but it is also quite expensive. It is a risk, therefore, which makes some investors nervous. Personally, I think it is a move that the company needs to make in order to gain strength in the industry. 4G LTE networks are on the rise, and Sprint needs to make this move if it does not want to fall behind. Therefore, this should benefit Sprint enough that the initially high costs will be worth it.
Sprint is continuing with smaller expansion developments as well, and these should have clear positive results for the company and the stock.
It is strengthening its services in the business technology industry, as it recently added to its Biz 360 solutions. Sprint's Biz 360 now includes new smartphones, applications, and 3G/4G embedded wireless devices. This is just one of Sprint's moves to move forward in the business technology industry, and this is a much safer move than its expensive Network Vision expansion.
Sprint will also benefit from the fact that Virgin Mobile is opening its first ten retail stores. This is an attempt to profit from Apple's (NASDAQ: AAPL) expansion into the prepaid wireless market with the iPhone. Although growth has been slowing down for "pay-as-you-go" companies like Virgin Mobile, the introduction of a popular product like the iPhone should help reinvigorate its business.
Things are certainly not perfect for Sprint, though, as it is continuing to struggle to gain a strong presence in the market for iPhones. A recent report revealed that Sprint only accounts for 9% of iPhone sales at Apple stores and 19% of iPhone sales at Best Buy (NYSE: BBY). AT&T tends to be the dominant company in this market, as Verizon barely beats Sprint's sales at Best Buy stores, only accounting for 21% of the sales.
Sprint needed a solid 2012, and it has had one so far. It has gained .85 points this year, a rise of almost 40%, and looks to leave its 52 week low of $2.10 far behind. Of course, other phone retailers are also doing well, and Sprint is still the weakest company in the mix; but buying Sprint so low (just over $3 per share) could be more profitable than shelling out for AT&T or Verizon.
Since 4G LTE is a higher speed technology, I think Sprint will see its profitability increase greatly, especially in the long-run, from its unlimited plans, as users will not be as agitated with running over their monthly data usage limited as they do with tiered plans.
This development will help sustain solid growth and improve investor sentiment in the second half of 2012. I think Sprint's 4G LTE expansion efforts could push Sprint toward $4 on this increased profitability, though that's a bit down the line, and supposing its expansion efforts are not for naught.
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