Will Clearwire’s Stock Continue Its Ascent?

With shares of Clearwire Communications (NASDAQ:CLWR) trading at around $3.37, is CLWR an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Sprint (NYSE:S) has made a bid for Clearwire. The bid is for $2.90 cents per share, or $2.1 billion. Sprint was already in for $1.9 billion, and they’re attempting to position themselves accordingly based on the huge move in mobile.

Sprint is in wheeling and dealing mode right now. They have also expressed in interest in a partnership with Dish Network Corporation (NASDAQ:DISH) for mobile services over Dish’s network (strange wording that couldn’t be avoided here.) The point is that Sprint is on the move in an effort to be more competitive with AT&T (NYSE:T) and Sprint.

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A lot of people feel that Clearwire needs to take Sprint’s offer because no one else will be interested. While that might be true, it’s not a certainty. What’s perhaps more important is to realize that Sprint might need Clearwire just as badly as Clearwire needs Sprint. The question is whether there will be a higher bid or not.

Past partners in Clearwire haven’t seen much success. This includes Google (NASDAQ:GOOG) and Time Warner Cable (NYSE:TWC). They both bailed from failed deals. Sprint’s partnership with Clearwire has also been a failure up until this point. The goal was to build a network that could compete with AT&T and Verizon. This was unsuccessful. Clearwire’s WiMax still has some potential, but AT&T and Verizon are using more advanced LTE.

Regardless of past failures, some analysts feel that Sprint could end up bidding as high as $5 for Clearwire. Though possible, that seems like a bit of a stretch. Keep in mind that Clearwire traded below $1 earlier this year. Greed has a habit of bringing pain.

Let’s take a look at what Sprint will get if any deal is finalized. In many ways, it looks more like coal in a stocking than a brand new train set.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Clearwire is on the high side. The balance sheet is in negative territory, but there are much worse situations out there in that regard. MetroPCS Communications (NYSE:PCS) and Leap Wireless (NASDAQ:LEAP) have been listed for comparative purposes.

Debt-To-Equity

Cash

Long-Term Debt

CLWR

1.86

$1.18 Billion

$4.27 Billion

PCS

1.44

$2.57 Billion

$4.78 Million

LEAP

6.35

$623.03 Million

$3.20 Billion

 

T = Technicals on the Stock Chart Are Mixed

Clearwire’s stock has moved violently this year, but overall it has performed well. The same can’t be said for the three-year timeframe.

1 Month

Year-To-Date

1 Year

3 Year

CLWR

42.12%

62.63%

46.74

-48.95

PCS

-1.77%

14.98%

17.00%

43.60%

LEAP

12.69%

-27.34%

-16.04%

-55.80%

 

At $3.16, Clearwire is currently trading above all its averages. This makes a $2.90 bid look enticing.

50-Day   SMA

2.07

100-Day   SMA

1.79

200-Day   SMA

1.68

 

E = Earnings Are Poor, But Revenue Has Been Impressive

Annual revenue is the most impressive component for Clearwire. However, this company is due to lose $1 billion this year.

2007

2008

2009

2010

2011

Revenue   ($)in   millions

N/A

20.49

243.77

535.10

1.25B

Diluted   EPS ($)

N/A

-.28

-1.74

-2.46

-3.07

 

The last quarter tells a different story YoY. Revenue decreased while earnings improved, or perhaps we should say that earnings were less worse.

9/2011

12/2011

3/2012

6/2012

19/2012

Revenue   ($)in   millions

332.18

361.87

322.64

316.93

313.88

Diluted   EPS ($)

-.54

-.59

-.44

-.33

-.34

T = Trends Support the Industry, But Not the Company

Mobile is scorching hot right now, and it’s only getting started. Does this mean Clearwire would be giving up too early if accepting Sprint’s bid? That’s debatable. What we do know is that Clearwire has performed poorly since going public, and this has been during one of the greatest bull runs in history (even though it doesn’t feel like it.)

It’s possible that Clearwire has great potential, but so far it seems as though management lacks foresight. With a profit margin of -59.17 percent, operating cash flow of -$471.53 million, and net income decreasing every year, it’s time to throw in the towel and give someone else a chance.

Conclusion

Since Sprint wants Clearwire so badly, a higher price is possible. On the other hand, Sprint is taking a big risk here. Based on the numbers above, it’s obvious to see that this is far from a sound investment. Therefore, the bid seems fair.

Considering all factors, Clearwire is a WAIT AND SEE.

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