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Citigroup Comments On Sprint's New Leasing Program


In a report published Thursday, Citigroup analyst Michael Rollins commented on Sprint Corp (NYSE: S)'s new leasing program that uses different accounting than a subsidized rate plan and even an installment plan.

According to Rollins, Sprint is likely to report higher OIBDA (Operating Income Before Depreciation And Amortization) and higher capital expenditure than the Street is expecting. The traditional calculation of OIBDA from the income statement under a new leasing program will not capture significant cash expenses that will instead flow through D&A and the cash flow statement.

As such, Rollins noted that Sprint is poised to get a "substantial" ongoing step-up in reported OIBDA while also burning "significant" free cash flow over the next two to three years.

Rollins estimated Sprint's reported OIBDA will climb to $8.3 billion in calendar 2015 (versus consensus estimates of $6.4 billion) while OIBDA will reach $11.1 billion in 2016 (versus consensus estimates of $7.6 billion).

"Sprint shares could trade higher & temporarily above $5/share on the upward OIBDA revisions," Rollins wrote. "However, the benefits of lease accounting should not change the economic value of Sprint's business model & future cash flows."

Rollins concluded that the recovery of Sprint's top-line performance remains "slow," free cash flow burn will continue, the interest for low-band spectrum could trigger a need for alternative funding and valuation adjusting for the cost of leased devices remains "elevated."

Shares remain Hold rated with an unchanged $5 price target.

Latest Ratings for S

Feb 2020CitigroupMaintainsNeutral
Feb 2020HSBCUpgradesReduceHold
Jan 2020CitigroupMaintainsNeutral

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Posted-In: Citigroup Michael Rollins OIBDA Sprint Device LeasingAnalyst Color Analyst Ratings

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