Sprint Stock Pick

Stock Pick: Sprint (S)

Why?

1. Cheap buy. Down to 8.70 from 52-week high of $23.42.

2. Intrinsic valuation range from 16-22.

3. Comcast wants to own a large wireless company. (What Wall Street missed)

Comcast wants to own a large wireless company

- Lacks cellular offering while AT&T and Verizon are coming after cable case

- Upgrade infrastructure to increase broadband speeds

- As wireless connection speeds get faster through WiMax and 4G networks, cable may lose some more customers who will turn to over-the-air broadband. Sprint is a big hedge against this.

- Can afford Sprint

Sprint:

- Mkt cap fallen to $24 billion, less than 1 x revenue

- Last quarter, $400 million in operating income on revenue of $10 billion

- $21 billion in debt (not substantial for size)

Why Sprint hurting?

- Net gain of 500k subscribers through wholesale channels, but offset by net losses of 683k post-paid subscribers & 202k pre-paid users.

- Root problem: Was unwilling to bring former Sprint & Nextel biz, CDMA & iDEN together

* CDMA performed well

* IDEN: underinvested in both marketing & iDEN network improvements. Iden customer base = '04 size.

What'll happen?

- Sprint will solve problems:

o Tightened credit standards

o Network & customer improvements

- Network performance at CDMA & IDEN is performing well

o Critical b/c biggest reason customers leave

- Adding back push-to-talk service on CDMA network

- Job reductions of 4k; result -> reduce labor costs by $700-800mm by '08

- Close 125 company-owned stores

Long-term advantages:

1. Size: 2x T-Mobile

2. Independence from land-line carrier

3. Deploy WiMax, next gen standard -> bolster its data capabilities, more revenue