Shares of Sprint Corporation (S) declined 4.6% yesterday, touching a 52-week low of $4.22. Over the past two trading sessions, the company’s shares slid more than 8% after leading wireless carriers, AT&T, Inc. (T) and Verizon Communications Inc. (VZ), hinted at lower profit expectations in the ensuing fourth quarter owing to intense competition.
On Dec 9, 2014, AT&T’s chief financial officer expressed fears about a considerably wider fourth-quarter churn rate compared to the year-ago period. AT&T also expects higher promotional expenses to hurt wireless service margins in the said quarter. A day before, Verizon Communications had announced its anticipation of lower earnings in the final quarter of 2014, likely to be hurt by higher promotional expenses and price cuts.
Following these developments, investors’ apprehensions regarding upcoming quarterly earnings performance of telecom companies have naturally increased.
Sprint, which lost a substantial 272,000 postpaid subscribers in the second quarter of 2014, is spending heavily on promotions and is combining them with lucrative discounts. Earlier this month, Sprint intensified the wireless pricing war in the U.S. after the company claimed that it will reduce the phone bills of AT&T and Verizon Communications’ customers by 50% if they switch to Sprint’s network.
We believe Sprint’s new offer will increase its marketing expenses in the coming quarter. The company’s operating expenses in the third quarter tolled $8,680 million, up 8.6% year over year. Operating loss was $192 million compared with $358 million in the year-ago quarter.
Sprint currently has a Zacks Rank #4 (Sell).
Other Favorably Ranked Stock
A better-ranked stock worth considering in this sector is Vonage Holdings Corporation (VG) with a Zacks Rank #2 (Buy).
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