We are maintaining a Neutral recommendation on
Sprint Nextel Corporation
) - the third-largest wireless carrier in the U.S. The company is
characterized by wide network coverage, attractive product and
service offerings and a well-designed restructuring program.
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We believe that Sprint is concentrating on three main objectives
to better its performance levels in the coming months. These
include subscriber and revenue growth in the core Sprint platform
business, massive conversion of Nextel customers to the Sprint
platform and overall improvement in its operating base to
generate higher profitability.
Sprint is also banking heavily on its multi-billion dollar
restructuring program known as Network Vision. This plan focuses
on the core Sprint platform, which includes CDMA, WiMAX and
Long-Term Evolution (LTE) technologies, and eventual termination
of the Nextel platform (iDEN business). We believe that the
closing of Nextel platform will provide savings from utilities
and maintenance, and additional savings from tower rent,
Recently, Overland Park, Kansas based Sprint expanded its
high-speed 4G LTE technology in the country by adding 11 new
markets. The new markets include Harrisburg, Pennsylvania; South
Bend/Mishawaka, Indiana; Muncie, Indiana; Peabody, Massachusetts;
and Salina, Kansas. These strategic initiatives of the company
are well supported by its strong financial position with healthy
cash on the balance sheet.
However, Sprint's not-so-impressive results for the third quarter
keep us from getting over optimistic about its future. The
company posted a loss for the three-month period and revenue
failed to meet our expectation.
Additionally, in the long-distance business, Sprint's overall
position has been weakened due to competitive technologies,
including Voice-over-IP (VoIP) and cable telephony as well as
lower pricing. We expect the company's wireline margins to be
adversely affected in the coming quarters by the loss of Time
Warner Cable VoIP.
The company is also struggling to deal with the loss of post-paid
customers to other industry players such as
Verizon Communications Inc.
). This shrink in subscriber base was primarily due to intense
price competition, ineffective marketing, less favorable network
quality and delay in integration of back-office functions with
its acquired units.
Hence, we expect Sprint to trade at par with the broader industry
and advice investors to hold on to the stock.