) has struggled with growing its subscriber base in recent years;
however we believe it is righting itself after launching many new
initiatives. Sprint recorded overall positive postpaid net
additions for the first time in a few years during the most recent
quarter as the CDMA platform added about 453,000 subscribers in the
quarter while iDEN lost about 395,000. We wrote about this in a
recent note titled
Sprint Points to Higher Investment in Network
. Sprint competes primarily with AT&T (
) and Verizon (
) in the mobile business, which makes ups almost 80% of
Our $5.15 price estimate for Sprint.
This is about 18% ahead of the market price.
Here are four areas where Sprint can improve its fortunes and
win kudos from investors.
Make a Decision - WiMax or LTE?
Sprint has pumped a significant amount of money into Clearwire
which has built out coverage of WiMax 4G technology in the U.S.,
thus giving Sprint an early market entry advantage. However, given
that LTE has more global support and Verizon and AT&T are
closing in on Sprint in terms of 4G coverage with their LTE
network, Sprint may have to decide whether to continue with WiMax
or shift gears to LTE entirely.
We discussed some of these issues in our note
Could Sprint's 4G Ambitions Include LTE?
, and is one of the key decisions for the company that will impact
its long-term growth.
Impact of Network Modernization Initiative
Sprint is investing significant capital in modernizing and
improving its network. The company is looking to add flexibility to
add LTE services in the future, migrate iDEN subscriber base to
CDMA network and improve in-building coverage. Additionally the
company also plans to decrease the number of its cell sites from
around 66,000 to 46,000 in the U.S.
If successful, not only will the network modernization improve
its service and help Sprint improve subscriber trends, but it will
also result in cost savings that can impact the company's
Expanding Customer Type
Sprint has been pushing beyond mobile service in order to
continue to grow. The company has been investing in technology that
would add wireless connectivity to cars, a market that Sprint
believes could bring revenues of over $1 billion within a few
years. Sprint has also partnered with ECOtality, an electric car
charging company, to connect its electric car chargers throughout
the country. New developments will help drivers locate charging
facilities through GPS, enable data tracking on charging habits,
and facilitate other processes like billing and digital content
This is a relatively new arena for the company but does present
a potential market for the company to tap in and better diversify
Sprint is loaded with debt currently. The company has net debt
of close to $14.7 billion compared to Trefis valuation of close to
$15.4 billion. This makes it a highly leveraged company leaving its
stock quite sensitive to driver changes like market share, margins,
capital expenditures, etc. and this debt profile can ward off many
investors. If Sprint can manage to reduce its debt in the coming
years, this will help build investor confidence and
reduce its cost of capital thus improving its intrinsic value.
Each of these four areas deserve focus as they can help reshape
Sprint's future. Let us know what you think in the comment section
the complete $5.15 Trefis price estimate for