The Good News About Sprint (S)

The “Big Squeeze” is all around us.

By the Big Squeeze I mean: banks squeezing depositors with virtual interest rates at near zero, insurance companies ripping off long-time customers with rate increases of about 20 percent in two years (State Farm), and pet food up about 20 percent since last week. The economy is ripe with similar examples as businesses try to squeeze customers and consumers for profit in an unfavorable economy.

I’m not just having a bad day. Last week I was in a diner and the waitress crossed out the generous tip we left and boosted it by a dollar before running the charge — now that’s a first for me!

One experience I can’t complain about is Sprint (NYSE: S) … lately that is.

I’ve been a Sprint customer for many years and the initial experience those many years ago just to get the service turned up was dismal. In those days, calling their customer service was like dealing with the Godfather himself — any time you requested the smallest change to your account, you could anticipate a bigger, unwanted change down the road. For example, you got an overcharge fixed only to find out later your contract expiration was moved out six months.

This year I made some significant account changes and the process was flawless. In addition, the CSR voluntarily gave me a sweet bargain on charges elsewhere.

So it’s nice to hear that the No. 3 wireless carrier may be turning around. In its latest earnings report, the company reported adding a net 111,000 wireless customers this quarter after losing nearly 1 million last year.
According to the WSJ:

“The growth is particularly impressive given that the industry is grappling with a slowdown in the number of new subscribers willing to sign long-term contracts, also known as postpaid customers.

“Our improvements are foundational,” Sprint Chief Executive Dan Hesse told analysts on Wednesday.”

For comparison, a recent tally by the AP reports the number of subscribers at the end of 2009 by carrier as well as subscribers added for the fourth quarter of 2009 (in parentheses):

1. Verizon Wireless: 91.2 million (added 2.2 million)

2. AT&T Inc.: 85.1 million (added 2.7 million)

3. Sprint Nextel Corp: 48.1 million (lost 148,000)

4. T-Mobile USA: 33.8 million (added 371,000)

We’ll take a close look at Sprint’s earning reported today and compare charts for the big three providers.

Sprint Nextel (NYSE: S)

Sprint reported a lower-than-expected loss of $.15 (pro forma diluted) per share for the second quarter on 1.4 percent lower revenues when compared to the year-ago period. The company also retired $750 million in short-term debt while retaining strong liquidity with $4.3 billion in cash and cash equivalents at the end of the quarter.

The company included a number of achievements in its report:

-first total net wireless subscriber growth in three years

-best ever year-over-year improvement in net postpaid subscriber results

-best postpaid churn result ever

-most improved company in customer satisfaction, across all industries, in the last two years as recognized by American Customer Satisfaction Index

-first to introduce the world’s first 3G/4G Android™ phone, the HTC EVO™, in June

-first 4G wireless provider with a launch of 4G service in eight new markets during the quarter

“Our intense focus for the past ten quarters on improving the customer experience, strengthening our brands, and generating cash are paying off,” said Dan Hesse, Sprint Nextel CEO. “With strong cash flow, stable OIBDA and widespread third-party recognition for the improvements we’re making in the customer experience, which in turn strengthens our brands, we feel we can confidently improve our subscriber forecasts for the second half of 2010 and deliver positive total net wireless subscriber additions for the remainder of the year.”

Comments: Sprint is doing the right things and doing things right. They are offering new products, increasing customer satisfaction to retain existing customers, and developing new markets with the Virgin Mobile brand through new channels. Like most companies growing market share, Sprint is expanding its customer base by spending money. And despite a dip in revenues this quarter, the company is positioning itself for solid growth in a future, more robust economy.

On closer inspection, however, the company had a recent run-up in price and looks fully valued at its current price near $5 per share. The stock is hovering in overbought territory. The company needs to improve operating margins and income before calling this stock a buy.

In a related story, the company recently reported an executive change: Dan Schulman, president of prepaid, will be replaced by Robert H Johnson, president of postpaid, who will now handle both consumer businesses.

The stock traded higher following the news but gave back the increase towards the end of the day.

Verizon Communications (NYSE:VZ) and AT&T Corp (NYSE:T)

Comments: The big three wireless providers show similar trading patterns but Verizon and AT&T are likely to give a bigger bang for the buck. Both companies offer a dividend in the mid to high 6 percent range (Sprint has no dividend). With a PE of slightly over 12 AT&T looks like the better buy. Long-shot Sprint, however, could break out to new yearly highs with a rise in the broader market.

Disclosure: No positions.