With shares of Sprint Nextel Corp. (NYSE:S) trading at around $5.97, is S an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
You have likely already heard that DISH Network (NASDAQ:DISH) offered $3.30 per share for Clearwire Corporation (NASDAQ:CLWR). Clearwire is reviewing the offer, but Sprint states that its earlier offer for Clearwire prohibits DISH from making a deal. Sprint is correct. Therefore, there will be no smooth and easy deal made between DISH and Clearwire. Sprint owns 50 percent of Clearwire and wants to that stake to go to 100 percent. Sprint offered $2.97 per share, and that deal looked like a reality until today. DISH isn’t a new player in all of this. DISH originally made the first offer, but Clearwire chose Sprint. For more information, turn to “The Young and the Restless.” Just kidding.
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The truth of the matter is that it will take months, if not longer, for all of this to get sorted out. Therefore, it’s best to look at Sprint’s situation without all the noise. Let’s start by taking a look at some important numbers.
E = Equity to Debt Ratio Is Weak
Sprint does a poor job of managing debt. The balance sheet is also weak.
|
Debt-To-Equity |
Cash |
Long-Term Debt |
|
| S |
2.51 |
$6.33 Billion |
$21.30 Billion |
| AAPL |
0.00 |
$29.13 Billion |
$0 |
| T |
0.63 |
$2.22 Billion |
$63.75 Billion |
T = Technicals on the Stock Chart Are Strong
Sprint has outperformed Apple Inc. (NASDAQ:AAPL) and AT&T (NYSE:T) over the past year. That’s impressive. Then again, when you’re using a substantial amount of debt to fuel growth, this should be expected. There will likely be long-term consequences.
|
1 Month |
Year-To-Date |
1 Year |
3 Year |
|
| S |
4.75% |
5.11% |
172.10% |
50.89% |
| AAPL |
-1.64% |
-1.44% |
25.27% |
149.60% |
| T |
1.73% |
1.81% |
20.11% |
48.31% |
At $5.97, Sprint is currently trading above all its averages.
| 50-Day SMA |
5.63 |
| 100-Day SMA |
5.44 |
| 200-Day SMA |
4.24 |
E = Earnings Have Been Poor
It should be easy to spot a trend with annual EPS. Revenue has been less than impressive.
|
2007 |
2008 |
2009 |
2010 |
2011 |
|
| Revenue ($)in billions |
40.15 |
35.64 |
32.26 |
32.56 |
33.68 |
| Diluted EPS ($) |
-10.24 |
-0.98 |
-0.84 |
-1.16 |
-0.96 |
When we look at last quarter’s results on a YoY basis, we see a slight increase in revenue, and a decline in EPS.
|
9/2011 |
12/2011 |
3/2012 |
6/2012 |
9/2012 |
|
| Revenue ($)in billions |
8.33 |
8.72 |
8.73 |
8.84 |
8.76 |
| Diluted EPS ($) |
-0.10 |
-0.43 |
-0.29 |
-0.46 |
-0.26 |
T = Trends Support the Industry
With mobile hot right now, everyone wants in on the action. We will likely see increased M&A activity, some of which will be cutthroat in nature, but investors don’t have to worry about tactics used. They will benefit as long as deals are completed.
Conclusion
Sprint is a money-losing operation with poor debt management and weak margins. There isn’t enough growth potential to justify the sudden love affair investors have with the company. That said, the stock’s upward momentum is substantial. Therefore, Sprint is currently rated a neutral WAIT AND SEE.
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