Is The Sprint Stock About To Pop?

  • Sprint is cutting expenses, increasing marketing and could be profitable soon.
  • Sprint stock is currently valued at half what T-Mobile is, but has the same revenue base.
  • Controlling shareholder Softbank might make a deal that could cause Sprint stock price to pop.

Sprint (NYSE:S) has been disappointing investors for some time, but that may be about to change.

It’s not that big changes are coming to operations, although cutting $2.5 billion through lay-offs should create a profit at a company where revenues are $35 billion/year.

Note: You might also be interested in 'Sprint Earnings Miss Estimates, But All Is Not Lost'.

Showing a profit would make the shares in the fourth-largest wireless carrier more comparable to those of rival T-Mobile US (NASDAQ:TMUS), which brings $500 million per quarter to its bottom line, on a similar $8 billion revenue figure. T-Mobile is currently valued at twice what Sprint is, $29 billion against $14 billion.

Sprint is not going to be organically cash constrained, thanks to a leaseback deal on phones with parent Softbank (OTC:SFTBY) that will bring in $1.1 billion in cash.

The company is still fighting for market share, and not giving up. When the company starts showing a profit Sprint stock price could double from its current price of under $4/share very quickly.

But I don’t think that’s the catalyst, or the reason to speculate on Sprint stock today.

I think Sprint is about to do a deal. Comcast -A (NASDAQ:CMCSA) is looking for a partner to create a hybrid WiFi-cellular offering. It’s a big hole in the cable company’s offerings. Comcast has spectrum and could easily do such a deal with Sprint – perhaps taking a minority stake for operations expertise, with an option to buy the rest. Or pressure from Comcast’s entry could be the catalyst for Sprint and T-Mobile to finally merge, creating a viable third alternative to Verizon (NYSE:VZ) and AT&T (NYSE:T).

Softbank CEO (and controlling Sprint shareholder) Masayoshi Son has the ambition of creating the world’s first global wireless carrier, and he is not one to sit around idly, letting a losing asset fester. He is going to act. He has plenty of assets with which to act – Softbank has more of Alibaba (NYSE:BABA) than Yahoo (NASDAQ:YHOO) does – and Comcast’s pending market entry means there are now more moving parts to push around the board.

This is all speculation, but Son is a gambler, a man I have been following for almost three decades now. He likes to put things together and he has the market cap – about $60 billion – to play with. He could decide to buy the rest of Yahoo and sell the bulk of Sprint, but even that deal would bring a premium over the company’s current valuation.

I may be wrong, but Son-san likes to make his big deals late in the fiscal year, which for Japanese companies means the end of March. If he is prepared to move, you should not have long to wait. And even if I’m wrong, the operational changes should create a profit that could double the stock’s value.

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  • I do not have any business relationship with the companies mentioned in this post.
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Comments on this article and S stock

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brett
bearish
Interesting analysis... but the one thing you're not considering is that despite massive price cuts Sprint isn't signing up subscribers in numbers significant enough to save them. There's a cultural disconnect in their marketing and management, and all the deals won't change the fact that consumers aren't buying what they're selling.
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