Argus Wonders How Far SoftBank Will Go To Support Sprint

Pointing to Sprint Corp.'s S first quarter loss, Argus expressed skepticism regarding how far the company's deep-pocketed parent, Softbank, would go to support the communications company.

"Softbank seems to be 'in for a penny, in for a pound' as Sprint continues to rack up losses," Argus analyst Joseph Bonner writes. "Sprint and Softbank have developed inventive financing options to keep Sprint liquid, though we wonder how far Softbank will ultimately go to support Sprint."

Analyzing the quarterly results, Argus noted that revenues were flat, with the top-line remaining steady around $8 billion over the last five quarters. The lackluster trend was blamed on fewer postpaid upgrades, lower rate plans offered and a shift from wireless equipment installment billing sales to leasing sales. Although operating income fell, adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) rose and adjusted EBITDA margin expanded. The loss on an adjusted basis widened.

Bonner widened his 2016 loss estimate for the company to $0.32 per share from $0.30 per share, while maintaining its 2017 loss estimate at $0.21 per share. The analyst noted that Sprint maintained its 2016 adjusted EBITDA and operating income guidance.

Argus commended Sprint's new CEO Marcelo Claure's swift plans to make the company competitive. The firm also stated that the company has managed to turnaround due to its cost-cutting and move away from the traditional subsidy model. Further, the firm noted that Sprint made progress on subscriber metrics in the fiscal year first quarter, with postpaid churn remaining flat and net subscriber addition seen in the first quarter compared to a loss of customers in the year-ago period.

Argus noted that Sprint's forward enterprise value/EBITDA multiple of 5.4 is 17 percent below its peer average and yet feels the discount is warranted, given the ongoing financial issues. The firm reiterated its rating on the shares of Sprint at Hold.