On Aug 31, we issued an updated research report on U.S. national wireless carrier Sprint Corp. (S - Free Report) . Currently, it is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sprint is on track with its network modernization and integration efforts to fortify its position in the wireless industry. The company is also known for its unlimited offerings, which are a counteractive competitive measure against rival carriers.
We believe these offerings have helped Sprint register an impressive number of customer additions for the first quarter of fiscal 2017. In the reported quarter, Sprint witnessed net additions of 61,000 wireless customers, including prepaid net additions of 35,000, wholesale and affiliate net additions of 65,000. The company lost 39,000 net postpaid customers. Sprint's focus on delivering the most attractive value proposition in wireless resulted in 88,000 postpaid phone net additions in the quarter, marking the eighth consecutive quarter of net additions. As of Jun 30, 2017, Sprint had 53,698 million wireless connections, up 0.63% year over year. Backed by such huge subscriber gain, Sprint has also raised its outlook for full-year 2017.
Meanwhile, Sprint’s wholly owned prepaid subsidiary, Virgin Mobile USA, has extended the unlimited service offer to existing iPhone owners who are switching over to the carrier. Earlier, Virgin Mobile USA inked a deal with tech giant, Apple Inc. (AAPL - Free Report) to relaunch itself as an exclusive iPhone carrier.
Recently, the company unveiled its Sprint MultiLine, an enterprise-grade solution within its Bring Your Own Device (BYOD) portfolio. Sprint MultiLine delivers a solution that allows businesses to add a company-owned number to their employees' personal phones for calling and texting on any mobile device and any underlying carrier. This will aid large enterprises as well as small and medium size businesses (SMB) to overcome challenges in the ever-growing BYOD environment.
The company further tries to save costs by relocating its mobile towers from the expensive space leased from Crown Castle International Corp. (CCI) and American Tower Corporation (AMT) to the lesser expensive plots on government-owned properties.
Positive Earnings Surprise
Sprint delivered a positive earnings surprise of 600.00% in the last reported first quarter of 2017 result (ended Jun 30). Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average earnings beat of 129.47%.
Additionally, the stock has an attractive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.
Of late, Sprint has been trying all means to check churn and fend off competition. Also, the company has been continuously making efforts to lure customers from rival carriers such as AT&T Inc. (T - Free Report) and Verizon Communications Inc. (VZ - Free Report) by offering attractive promotional plans and discounts. This in turn has led to high cash burn and heavy losses. Notably, with more smartphone launches coming up, specifically iPhone 7, we expect the promotional offers to dent margins.
Further, Sprint has a debt-laden balance sheet and has been witnessing losses each year since 2007. As of Jun 30, 2017, Sprint had $2,478 million of cash and marketable securities. Total debt outstanding was $34,459 million, compared with $35,878 million at the end of March 2017. Additionally, in the reported quarter, free cash flow was $239 million compared with $466 million in the year-ago quarter. Notably, such high debt levels, decreasing cash flows and liquidity pressure may adversely affect the company’s cost of capital while trying to raise new funds for network expansion.
The company's price performance has not been impressive at all. Over the past three months, shares of Sprint have declined 3.3% as compared with the industry’s decline of 1.6%.
When compared with the market at large, the stock’s performance looks miserable, as the S&P 500 index has rallied 0.9%, over the same time span.
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