5 Items Investor Are Watching For In Sprint's Earnings Next Week

With Sprint Corp S's national peers posting stronger-than-expected postpaid net adds in 4Q, Deutsche Bank’s Matthew Niknam trimmed the estimates for the company. He maintains a Hold rating on the company, with a price target of $6.

The postpaid phone net add estimates for Q4 and 2017 have been reduced from +600,000 to +400,000 and from +1.2 million to +900,000 respectively. This has resulted in a 1–2 percent reduction in the revenue and adjusted EBITDA estimates, analyst Niknam mentioned. He added that Sprint faced challenges in customer acquisition in Q4, evidenced by aggressive promotions and willingness of peers to sacrifice margins for growth.

Top 5 Focus Items For Q4 Earnings

Niknam mentioned five items to focus on:

1. How challenging has it become for the postpaid segment — The Q4 results from T-Mobile US Inc TMUS, AT&T Inc. T and Verizon Communications Inc. VZ reflected better postpaid phone volumes, backed by more aggressive promotions.
2. Commentary on strategic activity — “We believe potential strategic catalysts have overtaken tougher fundamentals as the key driver of Sprint stock in recent months. As such, we also think a more challenging trajectory (competition, rising capex) could be offset near-term by similar catalysts,” the analyst commented.
3. Capex and densification plans — Lower than expected wireless network capital expenditure had significantly improved free cash flows. Niknam said, however, that spending could increase going ahead.
4. Cost-cutting initiatives — Sprint had achieved ~$1 billion in cost savings in both F2015 and in the first half of F2016. The company could deliver similar results ahead.
5. How Sprint could achieve a turnaround in prepaid — Prepaid represented ~20 percent of Sprint’s service revenues. The analyst pointed out that revenues had been declining in the double-digit range year-over-year. “We believe a re-focus here may entail minimal handset subsidies but more aggressive rate discounts in early months, which is effectively the inverse of recent activity from peers.”