Expect Sprint to Take Awhile

Sprint Nextel (S - Analyst Report) is a leading provider of business and wireless communications services in the U.S. The company is experiencing lower revenue and customer retention issues that have impacted overall financial conditions.

A new management team at the company has suggested that operating improvements may take several quarters to transcend to financial results. The company is challenged with subscriber growth issues and churning of postpaid subscribers to its rivals -- AT&T Wireless (T - Analyst Report) and Verizon Wireless (VZ - Analyst Report) -- primarily due to complications with its network integration of CDMA and iDEN wireless technologies.

Further expendititures on its WiMAX wireless infrastructure, while a possible differentiator for Sprint in the future, is expected to restrict earnings performance over the near-term and, therefore, we maintain our Hold rating.

We believe that a lower margin revenue mix, incremental investment in business operations and start-up costs related to the build-out of fourth generation WiMAX wireless infrastructure will have an adverse impact on the bottom line. Hence, we maintain our Hold rating with a $8.00 price target based on a 2008 EV/EBITDA of 5.5x.

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