On Dec 7, we issued an updated research report on Sprint Corporation S.
The company reported disappointing financial results in the second quarter of fiscal 2015 wherein both the top and the bottom line lagged the Zacks Consensus Estimate.
Meanwhile, Sprint’s constant focus on subscriber addition and revenue growth at its core platform through the deployment of a multi-billion dollar restructuring program – Network Vision – enhances wireless growth prospects.
Moreover, addition of retail stores in new markets, continual enhancement of its 2.5 GHz network coverage and reduced churn rate bode well. Also, Sprint has adopted a cost-cutting program through which it aims to slash fiscal 2016 expenses by as much as $2.5 billion by means of job cuts and cost control.
Moreover, Sprint has become the first ever U.S.-based carrier to offer roaming services in Cuba by partnering with Cuban telecom operator ETECSA. With tourism expected to get a lift as the Cuban-U.S. relationship betters, Sprint is poised to gain substantial revenues from this move.
However, Sprint has been losing customers for quite some time now and has been trying all means to make a turnaround to keep up with its competitors in the industry. Recently, the company took the wireless pricing war in the country to another level by launching a promotion offering AT&T, Inc. T, Verizon Communications Inc. VZ and T-Mobile US, Inc. TMUS customers a 50% price cut on their existing plans if they switch to Sprint.
Meanwhile, in September, Sprint slashed the price of its iPhone forever monthly plan from $22 to $1 for a period of 22 months, offering a better deal than T-Mobile’s $5/month plan for 18 months.
Notably, Sprint has signed a deal with Mobile Leasing Solutions, LLC, which has been recently created by a group of equity investors including Sprint’s majority owner and parent company, Softbank Group. Sprint expects cash infusion of roughly $1.1 billion from this sale and lease-back deal.
However, taking the deal and other costs into consideration, the company had to slash its annual forecast for adjusted EBITDA (earnings before interest, tax, depreciation and amortization). It now expects full-year EBITDA in the range of $6.8 billion to $7.1 billion, down from its previous range of $7.2–$7.6 billion.
Moreover, Sprint is severely cash strapped. Further, the company’s financials may take a severe hit as its promotional strategies are likely to impact wireless segment EBITDA and EBITDA service margins in the near term, anticipating an increase in expenses.
Meanwhile, Sprint has decided to give the upcoming 600 MHz low-band airwaves auction a miss. Though this move will lead to cash saving, it will limit the company’s scope for network upgrades and expansion, which may hurt its operations going ahead.
Sprint currently has a Zacks Rank #3 (Hold).
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