Morgan Stanley Says Sprint's Headline EBITDA Should Be Strong

In a report published Monday, Morgan Stanley analysts maintained an Underweight rating on

, with a price target of $5. Sprint is scheduled to report its 1Q15 results on Tuesday. "As we head into 1Q15 earnings, we are below consensus on revenue and subscriber metrics, but above consensus on EBITDA, due to installment / leasing accounting," the analysts stated. The company adopted leasing accounting which involves moving the cost of equipment to working capital or capex depending on its sale via direct or indirect channels. Sprint has guided to CY15 EBITDA growth of 5 percent to 7 percent y/y. While Sprint is focusing on price competition, the low churn rates of other players, like

,

and

, have shown that the initiative of "Cut Your Bill in Half" failed to have a significant impact. In the report Morgan Stanley noted, "We estimate negative postpaid net adds for Sprint (MSe: -135k postpaid net adds, -336k postpaid phone net adds), but strong prepaid net adds (MSe: +181k prepaid net adds), benefiting from tax refunds in the first quarter." In February, Sprint had promised to provide guidance for FY15. However, the company is yet to do this, and to outline its network strategy.