Despite Improving Network, Sprint Still Lags Peers

Although Sprint Corp’s S Network seems to be improving, there are concerns surrounding sustainability, Barclays’ Amir Rozwadowski said in a report. He maintained an Equal Weight rating on the company, while raising the price target from $5 to $6.

Sprint’s capex in the first half of 2016 was lighter than expected, despite the ~40 percent cut in the company’s spending budget.

Against this backdrop, investors are mainly concerned about “whether Sprint's spending strategy is driven by capital preservation or a new and more efficient network improvement strategy designed to help optimize its spectrum holdings,” analyst Rozwadowski mentioned.

Network Seems To Be Improving

Sprint's financial obligations have not adversely impacted the company’s investment strategy. “That being said, based on most network testing firms' analysis (Rootmetrics, Ookla, et. al.), the carrier's network quality continues to improve,” Rozwadowski stated. He added that this trend would likely continue, given the size of the company’s 2.5GHz spectrum holdings.

Questions On Sustainability

Concerns around sustainability are likely to remain unaddressed. Despite the improving network quality, Sprint “lags its peers in many cases,” the analyst noted.

“Its own admission that a key element of its diminished capital intensity is due to the timing of small cell deployments will likely keep questions on whether it can execute on its "more for less" network improvement strategy on the table,” the Barclays report stated.

Sprint is likely to make further cost cuts beyond the current target of $2 billion. Rozwadowski added, however, that it was “hard not to expect” an increase in capex from the FY16 levels of $3.0 billion.

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