KeyBanc Upgrades Sprint After 'Better Than Feared' Report

Sprint Corp S's third-quarter earnings report last week sent the stock higher by more than 5 percent Friday and prompted KeyBanc Capital Markets to upgrade the stock's rating.

The Analyst

KeyBanc Capital Markets' Brandon Nispel upgraded Sprint from Underweight to Sector Weight with no assigned price target.

The Thesis

Sprint's Q3 report on Friday was "better than feared," Nispel said in the upgrade note. (See the analyst's track record here.)

Total wireless service revenue fell short of the consensus estimate, but the total adjusted EBITDA of $2.72 billion came in ahead of the $2.67 billion Wall Street expected. While postpaid phone net additions fell short of expectations, postpaid churn of 1.8 percent was in-line with the 1.81 percent consensus estimate and postpaid average revenue per user of $45.13 was similarly in-line with expectations of $45.69.

Looking forward to the full year 2018, Sprint said it has signed two agreements with major tower companies and is likely to boost the number of cell sites by 20 percent, the analyst said. This may imply an additional 8,500 cell sites, and Sprint is targeting to enable its 2.5GHz spectrum on the 50 percent of sites where it isn't already live, Nispel said. 

Sprint will likely see its churn peak in 2018 as its investments take hold and then moderate in 2019, he said. This removes one of the more notable negative aspects of Sprint's business, which justifies an upgrade, especially at a time when the stock's valuation is "more reasonable" versus the premium it once had, Nispel said. 

Price Action

Shares of Sprint were trading lower by 0.2 percent early Monday morning.

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Photo by M.O. Stevens/Wikimedia.