Four Quick Thoughts on How Sprint Can Improve its Outlook

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Sprint ( S ) 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 Improvement . Sprint competes primarily with AT&T ( T ) and  Verizon ( VZ ) 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 value positively.

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 delivery.

This is a relatively new arena for the company but does present a potential market for the company to tap in and better diversify itself.

Reducing Leverage

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 below.

See the complete $5.15 Trefis price estimate for Sprint's stock.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: S , T , VZ

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