Can Sprint Nextel Continue This Bullish Run?

With shares of Sprint Nextel (NYSE:S) trading around $7, is S an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Sprint Nextel offers wireless and landline communications products and services to individuals and businesses in the United States. Through its two segments, Wireless and Wireless, it offers voice and data transmission services to subscribers in all 50 states, Puerto Rico, and the United States Virgin Islands under the Sprint corporate brand, which includes its retail brands of Sprint, Nextel, Boost Mobile, Virgin Mobile, and Assurance Wireless. An increasing share of the population is opting for these communications products and services, fueling profits for Sprint Nextel. As the desire to connect with others continues to rise, profits and the stock price should follow.

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T = Technicals on the Stock Chart are Strong

Sprint Nextel stock has recently broken above a value range that extended back to 2008. The stock is now searching for value at higher prices so it may continue to move in a positive direction. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Sprint Nextel is trading above its rising key averages which signal neutral to bullish price action in the near-term.

S

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Sprint Nextel options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Sprint Nextel Options

42.49%

90%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Sprint Nextel’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sprint Nextel look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

27.59%

-1.22%

-160%

-64.29%

Revenue Growth (Y-O-Y)

0.68%

3.24%

5.16%

6.40%

Earnings Reaction

-0.14%

-0.51%

-1.77%

20.17%

Sprint Nextel has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Sprint Nextel’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Sprint Nextel stock done relative to its peers, Verizon (NYSE:VZ), AT&T (NYSE:T), T-Mobile (NYSE:TMUS), and sector?

Sprint Nextel

Verizon

AT&T

T-Mobile

Sector

Year-to-Date Return

27.34%

11.74%

5.19%

3.57%

9.83%

Sprint Nextel has been a relative performance leader, year-to-date.

Conclusion

Sprint Nextel offers communications technology, through the use of wireless and wireline systems, to consumers and companies across the United States and its territories. The stock has seen an impressive run over the last year and has recently broken-out in the search of value. Over the last four quarters, earnings have been mixed while revenue figures have increased, overall disappointing investors in the company. Relative to its peers and sector, Sprint Nextel has been a year-to-date performance leader. Look for Sprint Nextel to OUTPERFORM.

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