Sprinting to bankrupcy unless Sprint (S) can profit?

Sprint Nextel (S)

Share price: $2.72

Shares: 2.996 billion

Market capitalization: $8.14 billion

Bonds: $18.5 billion

It amazes me that Sprint went from $1.35 in November 2008 to $6.45 May 2011.  There is a lot of speculating going on in this stock because the fundamentals are just plain horrible.

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DIVIDEND RECORD

Sprint has not paid a dividend since the end of 2007.  It paid an annual dividend of $0.50 from 2001 to 2004, then it cut its dividend to $0.30 in 2005, and in 2006 – 2007 it cut the dividend to $0.10 annually.  Sprint offers no current income to its remaining shareholders.

EARNING POWER

                EPS                         Net inc.                Shares                  Adj EPS

—————————————————————————-

2006       $0.45                     $1,327 M              2,972 M                $0.44

2007       ($10.27)                ($29,580 M)        2,898 M                ($9.89)

2008       ($0.98)                  ($2,796 M)          2,863 M                ($0.94)

2009       ($0.84)                  ($2,436 M)          2,886 M                ($0.81)

2010       ($1.16)                  ($3,465 M)          2,988 M                ($1.16)

2011E    ($0.93)*               ($2,786 M)          2,996 M                ($0.93)

*mean loss according to Wall Street estimates I looked up on Morningstar.com

Sprint would have to lose $0.40 per share in 4Q2011 to meet the mean Wall Street estimates.  I don’t think that will happen since the iPhone 4 users start adding to Sprint’s revenues in 4Q2011.  I think Wall Street analysts have set the bar so low than even Sprint can beat their estimates.

Results from the first three quarters of 2011:

1Q          ($0.15)                  ($439 M)              2,992 M                ($0.15)

2Q          ($0.28)                  ($847 M)              2,994 M                ($0.28)

3Q          ($0.10)                  ($301 M)              2,996 M                ($0.10)

—————————————————————————-

Total      ($0.53)                  ($1,587 M)          2,996 M                ($0.53)

Six year average adjusted earnings per share is ($2.22).  I wouldn’t buy Sprint until it becomes profitable for several years.

BALANCE SHEET

Sprint’s balance sheet is frightening.  Assets are falling more than liabilities, so equity keeps disappearing.  It will be interesting to see

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Book value per share: $4.35 as of 3Q2011

Price to book value: 0.625 (this is good, but book value keeps shrinking)

Current ratio: 1.12 (over 2.0 is good)

Quick ratio: 0.49 (over 1.0 is good)

CONCLUSION

Sprint offers no dividend, no profits, and shrinking shareholder equity.  These three facts do not add up to safety of principal and a satisfactory return.  The purchase of Sprint at $2.72 per share is speculative.  AT&T (T) and Verizon (VZ) offer high dividends, profits, and increasing shareholder equity.

Almost everyone who has bought Sprint stock in the past 12 years has lost large amounts of money.  This company has forgotten how to make money.  It will take a few profitable years and some hefty dividends to attract me to their stock.  Sprint offers no safety of principal with its horrible yearly losses and the bad economic backdrop.  What is their unique selling proposition?  As best I can tell it is the download speed of their 4G network.  They claim it is up to 10x faster than their 3G service.  AT&T and Verizon both make the same claims.  Perhaps they have the largest 4G network, but that doesn’t come across in their advertisements.  It will take huge infrastructure costs to build out their 4G network.  The large yellow circles mask the smallness of their 4G network.  I’m not impressed after visiting the Verizon and AT&T websites to examine their 4G offerings.  Sprint is sprinting to bankruptcy.

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For example, there are many areas in Denver that you would only get good 4G service while outside on the street.  Most people are inside their work locations most of the day.

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DISCLOSURE  I don’t own Sprint Nextel (S)

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Published in: on October 30, 2011 at 5:10 pm  Leave a Comment  

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