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FBR: Sprint Will Outperform The Market On 'High-Risk, High-Return Plan'

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In a report published Thursday, FBR Capital Markets analyst David Dixon upgraded the rating on Sprint Corp (NYSE: S) from Market Perform to Outperform, while maintaining the price target at $6, despite the company missing the Street estimates for 2Q revenue and EPS.

Although the company missed the 2Q top line and EPS Street estimates, it achieved postpaid net add growth, historically low postpaid churn and higher-than-expected adjusted EBITDA. "With Network Vision complete, we see a return to growth, profitability, and positive free cash flow," analyst David Dixon wrote.

"Despite management changes, Softbank now makes all decisions and is fully engaged with the asset. On one hand, if Masa remains deeply involved, he may succeed; on the other, if Masa micro-manages, it may become harder to execute," Dixon said, while adding, "We are backing Masa's high-risk, high-return network plan and back Marcello Claure to execute well."

The technology and execution risks were high, since the plan was unproven so far, even though the industry appears to be moving in that direction. The FBR Capital Markets report pointed out that the plan had the potential to "put Sprint into a leadership position" in the longer term, by leveraging technology that "the industry is only beginning to turn to."

Sprint raised its FY15 adjusted EBITDA guidance from $6.5B–$6.9B to $7.2B–$7.6B, while projecting cash capex at $5B, excluding leasing impacts. The FBR estimates for the company's FY15 revenue, adjusted EBITDA and EPS have been revised to $33.0B, $7.4B and ($0.38), to reflect subscriber momentum.

Latest Ratings for S

Feb 2018Bank of AmericaMaintainsUnderperformUnderperform
Feb 2018KeyBancUpgradesUnderweightSector Weight
Jan 2018MacquarieDowngradesNeutralUnderperform

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Posted-In: FBR Capital MarketsAnalyst Color Upgrades Analyst Ratings


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