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Barron’s: Sprint May Go Through Rough Weather In Coming Years

Barron’s: Sprint May Go Through Rough Weather In Coming Years

In a research report posted on the Barron’s website by Eric Savitz, Bernstein Research analyst Craig Moffett maintained his “underperform” rating on Sprint (NYSE: S) and reduced its target price to $2.50 from $3.

According to Moffett, bullishness surrounding the company’s stock is dependent on the company:

1. Reversing its subscriber losses.
2. Reversing its decline in margins.
3. Keeping its capital spending to a minimum, while funding the build out at Clearwire (NASDAQ: CLWR).

However, the odds are heaped against the company as:

1. The post-paid market is suffering from extremely low subscriber growth. To expand in this market, Sprint has to gain market share from Verizon Wireless and AT&T (NYSE: T).

2. The market suffers from seasonality, with post-paid gross adds seeing a 10% sequential decline in Q1. This indicates that there is a high possibility of S missing the consensus expectation on post-paid adds even if the company maintains its share.
3. In the pre-paid segment, the demand for the company’s Boost Unlimited service seems to be dwindling due to lower-priced plans from competitors.
4. Moffett also points to the hapless scene on the margins front. With Sprint’s CFO Bob Brust indicating the completion of headcount reductions, the cost structure is at its best. Moreover, there is limited room for price cuts with wireless service margins at just 18.2%.
5. Last, but not the least, the company is most likely to lose its contract to provide wireline service to Time Warner Cable (NYSE: TWC), which will result in the company losing up to 25% of its wireline EBITDA, or about $250 million per annum, in the forthcoming years.

Sprint’s shares are currently in an uptrend and have gained 2.8% over the past 4 days. S lost 0.41% to $3.61 at 1:49 pm.

Read more on Barron'shere.

Posted-In: Analyst Color News Short Ideas Price Target Markets Analyst Ratings Media Trading Ideas


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