Why Smart Money Loves Sprint

Sprint Nextel

reported

this morning, reporting a mixed bag, beating on the bottom line, and missing on the top line. Shares are off 4 percent today, but are off the lows of the session. The Kansas City-based company reported a third quarter loss of 10 cents per share on $8.3 billion in revenues. Wall Street was expecting a loss of 22 cents per share on $8.38 billion in revenues. "Sprint's focus on creating the best customer experience with simple, unlimited plans and innovative products and services continues to strengthen our brand and drive positive results," said Dan Hesse, Sprint CEO. "We are adding to our customer base, our ARPU is increasing, and as a result our wireless revenues are growing." However, the real issue is why are there are so many hedge funds involved in the name. From

of Greenlight Capital to Dinakar Singh of

there are a slew of hedge fund investors in the cell phone company. Einhorn said that he sees value in the spectrum holdings. The spectrum alone, could make the company worth $6-$8 per share, according to Auriga Securities analyst Chandan Sarkar. Singh also talked about the spectrum, but also mentioned the potential of Sprint getting the iPhone at the Ira Sohn conference, back in May. Now that

we are starting to see some hard data out of Sprint about the device. Sprint CEO Dan Hesse said that the iPhone 4S is attracting new customers, and that iPhone customers may contribute more new users than the popular HTC Evo. The company also expects iPhone users to be 50 percent more profitable than other users, as iPhone users generally use more data than other customers. Sprint is the last of the three major carriers to offer unlimited data plans. AT&T

and Verizon

scrapped theirs, perhaps because of the heavy usage of data from iPhone customers.

In addition to the iPhone, many on the buyside believe that Sprint could get taken out. Singh mentioned CenturyTel

as a potential buyer, and some have even mentioned a deal with T-Mobile, if the T-Mobile/AT&T deal ultimately falls through. The sell side is also positive on Sprint, with Citi having a $6 price target and a Buy rating on shares. In their note,

"Sprint updated its guidance for potential debt issuance to a range of $5-7 bil., including $1-3 bil. from vendor financing, which partly relates to the company's objective to maintain a higher cash-on-hand balance of $2 bil. throughout the next few years vs. our prior estimate of $500 mil. While Sprint's near-term cash flow burn & fundraising needs exceeds our prior estimates, we expect S to issue debt in the near-term and see it as poised to improve returns by restructuring its network operations & improving marketing efficiency." There you have it. Several investors are who are deemed "smart" money making big bets on Sprint for a potential double or even triple from current levels if the plan works out.

Traders who believe that the "smart" money is correct might want to consider the following trades:

Traders who believe that Sprint will not be able to get its debt management in order may consider alternate positions: