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Sprint’s Prolonged Turnaround Making Positive Progress
Posted by: Muhammad Bazil (IP Logged)
Date: September 30, 2012 02:32PM
Sprint (S) has been engaged in a grueling turnaround ever since the miscalculated Nextel acquisition at the fall of 2005. To my delight, it has exhibited positive progress despite the aggressive competition displayed by bigger rivals AT &T (T) and Verizon (VZ).
As of now, Sprint’s performance tells a story of a stock that is bound to deliver returns in the long haul. The numerable positive indicators outweigh its past unstable performance, underscoring the positive progress that it has made in light of the turnaround.
Stock surges in an unprecedented fashion
The first and perhaps the most unquestionable indicator of positive progress is the 136 percent surge in Sprint’s stock this year alone. In fact, this surge represents the second biggest gain in the Standard & Poor 500 index.
While there is a host of contributory factors toward this unprecedented increase, the primary reason is all too obvious. Investors are confident regarding the positive progress made and as a result, have higher demand for Sprint’s stock.
I believe that this is good for the stock. Expectations are brimming and investors are willing to pay more to get to the cutting edge of the action.
The following graph invites a deeper read, highlighting the evident positive progress in Sprint’s stock.
Despite the unavoidable fluctuations, it is evident that its stock has been on an unprecedented upswing over the past year. This endorses my standpoint on increased demand.
Bulging cash reserves
Sprint’s cash and equivalents stand at a seven year high of $6.8 billion. Ever since the ill-fated Nextel acquisition in 2005, Sprint has been grappling with debt and troubled finances. As such, these bulging cash reserves restore hope.
Speculation is rife that Sprint is considering some acquisitions following the cash surge. This time round, analysts believe that Sprint will not make the same mistake it made with Nextel in 2005 when it parted with $36 million for an ill fated deal.
My personal convictions point toward smaller acquisitions. I believe that smaller acquisitions are more viable at a time when Sprint is trying as much as possible to avert the possibilities of a 2005 scenario. Similarly, smaller acquisitions will be instrumental in expanding its customer base which currently trails behind AT & T and Verizon.
Current possible targets include MetroPCS Communications and Leap Wireless International – all of which will create a combination big enough to rival bigger carriers.
Everything is going according to plan
Given that everything is going according to plan, the projected profitability in 2014 edges even closer. Dan Hesse, the chief executive who was hired in December 2007 to provide oversight to the turnaround, is working around the clock to ensure that he restores profitability.
As it is, the turnaround is embarked on the second phase of a three part schedule. This demonstrates that the first phase was successful and timely. Such an achievement cannot be overlooked especially after considering that the first stage of the turnaround came during the global economic slowdown.
Another highlight that demonstrates Sprint’s well worked plan is the ongoing two year spending stage that Sprint finds itself in. The cash surge suggests that spending will gain momentum as the company heightens the tempo in light of the expected profits in 2014.
From my line of thought, the turnaround has been a success so far.
Despite the notable improvement, Sprint plays second fiddle to AT &T and Verizon. Its two bigger competitors control a larger market share, have faster networks and have the financial edge. Nonetheless, I am confident that Sprint’s strategy outshines the competition.
AT &T for instance has a long known strategy of using its dividends to lure in dividend growth investors. Given its size, it doesn’t mind digging into its cash reserves from time to time to keep a few investors smiling. As of March 2011, the bigwig telecom player had increased its dividends for 27 years straight. While investors find delight in this, I don’t believe that the increased dividends signal high prospects in the future. The yield is simply not sustainable in the current market.
Verizon, on the other hand, has had to face off with TiVo, the common enemy. In a patent settlement, the carrier agreed to pay $250 million over TiVo’s long disputed DVR technology. Earlier in the year, AT &T was also compelled to pay $215 over the same.
In conclusion, I believe that Sprint’s long term prospects are high; everything is going according to plan, projected profits are edging closer and its stock is embarked on a bullish stretch. Nonetheless, it still has a long way to go when compared with its competitors.
Stocks Discussed: S, T, VZ,