Sprint Nextel rose 4.1 percent, Barron expects its shares to rise

Source:barrons.com
SPRINT'S FIRST-MOVER STATUS could draw new customers to Sprint's network and convince existing customers to stay: "Hot phones are clearly an important factor in adding and keeping customers," says Raymond James analyst Ric Prentiss.

As its total subscriber count grows, Sprint's revenue and Ebitda (earnings before interest, taxes, depreciation and amortization) should stabilize, leading its shares higher. Sprint's bottom line remains in the red, owing to high levels of depreciation, but the company is producing significant cash. Jonathan Chaplin, an analyst with Credit Suisse, estimates that Sprint in 2010 will generate $2.2 billion in free cash flow, the annual funds left over after Sprint has met all its obligations, including interest payments and investments in infrastructure. But with the shares at a recent $4.58, the market is still not giving Sprint credit for the strong cash flow. Sprint trades at a so-called free cash flow yield of near 20%, compared to about 10% for rivals AT&T and Verizon.

Chaplin thinks that Sprint could more reasonably fetch a 14% free-cash-flow yield, still a significant discount to its peers, putting the stock at $6.

Barron's already has endorsed Sprint stock in recent months (see Michael Santoli's "Sprint Nextel Starts to Hit Its Stride," Dec. 7, 2009), but first-quarter results and the June 4 launch of the Evo 4G phone brings new reason for optimism.

In late April, Sprint posted quarterly revenue and Ebitda slightly ahead of the consensus estimate. On the postpaid side of the business, where contracts are required and Sprint has struggled, the company's net subscriber losses also were slightly lower than expected, according to Credit Suisse estimates.