On Aug 23, we have our Neutral recommendation on
) following mixed financial results for the second quarter of
2013. While the company's bottom line lags the Zacks Consensus
Estimates, top line surpassed the same in the recently concluded
Why Remain Neutral?
Amid much speculation, Sprint finally completed its
acquisition by Softbank Corp. Early in Jul 2013, the deal
received shareholders' approval along with the U.S. Federal
Communications Commission (FCC) clearance. We believe, the
success of the acquisition deal has placed Sprint in a stronger
competitive position against giant carriers like
Verizon Communications inc.
Besides improving market position, the deal aided in improving
Sprint's liquidity and facilitated key expansion plans including
Clearwire acquisition. Going forward the company is taking key
development plants that include building its core Sprint platform
through its Network Vision program.
As part of the Network Vision strategy, the company's LTE
services currently covers over 151 markets with 20,000 sites on
air. In 2013, the company expects to have LTE coverage for
approximately 200 million customers. We believe the efficient use
of capital, reduction of cell sites, the elimination of dual
networks, backhaul efficiencies, reduced churn, lower roaming
charges and energy cost savings bode well for Sprint's long-term
Hence, the network restructuring is expected to generate $10
billion to $11 billion in savings over the next seven years
(2011-2017). Moreover, Sprint's OBITDA margin is expected to grow
by 1200-1600 basis points (bps) by the end of 2014. About half of
the margin expansion would come from the Network Vision plan and
the other half from its core operations.
However, given more than 95% U.S. wireless penetration,
competition is likely to remain intense, which could pressure top
and bottom-line results as carriers compete for market share.
Although Sprint has started reducing its net loss in the
post-paid subscriber base, we remain concerned about the return
of this trend in the future.
If this course does not continue, revenues from Sprint's
wireless segment will come under pressure once again as it was
iover the past several years. The decline in Sprint's post-paid
customer base is primarily attributable to intense price
competition, less competitive marketing, less favorable network
quality and delays in integration of back-office functions with
the Nextel unit
Further, the company incurred costs related to the Nextel
network shutdown which are recognized as costs related to lease
exit charges, backhaul access contracts and other associated
costs. These expenses amounted to $623 in the second quarter. Tax
expense for the year is also expected to rise and range between
$170 million and 220 million.
In addition, the company assumes the dilutive impacts of
SoftBank and Clearwire transactions to be approximately $400
million. Going forward, capital expenditure for the year is
expected at higher levels, estimated around $8 billion owing to
higher spending on Network Vision.
Currently, Sprint has a Zacks Rank #3 (Hold)
Stocks to Consider
Another stock to consider is
Cincinnati Bell Inc.
), which has a Zacks Rank #1 (Strong Buy).
CINCINNATI BELL (CBB): Free Stock Analysis
SPRINT CORP (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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