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Dodge & Cox Comments on Sprint
Posted by: Holly LaFon (IP Logged)
Date: August 22, 2013 05:13PM

Sprint (S), the third largest cellular carrier in the United States, is a 2.3% position in the Fund. Since the Fund's initial investment in 2006, the company has faced a difficult competitive environment, lost market share to Verizon Wireless and AT&T (the two largest carriers in the United States), and struggled to assimilate Nextel, which it acquired in 2005. In addition, overall economic weakness and the 2008-2009 equity market decline impacted profitability. As a result of these challenges, Sprint's share price dropped significantly from the Fund's initial purchase price. By mid 2012, the broader economy and equity markets had recovered from the lows of 2009, but Sprint continued to struggle.

Throughout this period, we continually reassessed the company's major risks and challenges, including its competitive position, balance sheet, cash flow, and capital spending needs. We also evaluated the value of the company's customer base, and its other assets, including its ownership stake in Clearwire. Concluding that the shares had significant potential, we decided to add meaningfully to the Fund's position during 2012. Importantly, our analysis compared the existing price to what we believed the long-term value could be; the initial purchase price did not cloud our analysis.

Recently, the combination of stabilizing market share and continued progress on infrastructure upgrade projects was partly recognized by investors, and Softbank's offer to buy a controlling interest in Sprint and improve funding caused the shares to move even higher. During the past 12 months, Sprint (up 115%) was one of the largest contributors to the Fund's outperformance.

From Dodge & Cox's semi-annual report here.



Guru Discussed: Dodge & Cox: Current Portfolio, Stock Picks
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