The Long Case for Sprint Nextel
Amit Chokshi submits:
Sprint (S) recently reported Q409 earnings that fell short of Street expectations. This sent share prices tumbling with investors trying to gauge when S’s long awaited turnaround will materialize. Given the competitive landscape S faces, a number of Street analysts have written S off and have continued to beat the drums of the Company’s demise. The stock is also reflecting significant investor apathy and skepticism regarding S. However, if one takes a closer look, a compelling bull case could be made for the Company. Rather than first cover the merits of S, it may make sense to review why the Street and investors are negative on the stock. While some of the bear case on S is clearly valid, there are also some misconceptions regarding the Company and once those are highlighted, S may become a more attractive investment.Bear Case Highlights:
1) Sprint’s key operating metrics are worst in class: Bears are quick to point out that S significantly lags its peer group in terms of key operating metrics. As Tables I and II illustrate, this is true. The Company has lagged its peers for years, particularly the two dominant players Verizon Wireless (VZ) and AT&T Mobility (T). However, one should note that from a free cash flow perspective, S is free cash flow positive and while its free cash flow margin ("FCFM") lags VW and ATM, it exceeds, and has exceeded, pre-paid peers Leap Wireless (LEAP) and MetroPCS (PCS) for years.
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Investing, Long Term Investment, stock market | admin February 26, 2010
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