Is Sprint a Buy at Current Prices?

With shares of Sprint (NYSE:S) trading around $8, 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 offers wireless and landline communications products and services to individuals and businesses in the United States. Through its two segments, Wireless and Wireline, 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.

Sprint and Dish (NASDAQ:DISH) are teaming up on a project that could bring broadband Internet to people living in remote areas with limited access, the two said in an announcement on Tuesday. “With millions underserved by inadequate broadband, the potential to bring a high-speed fixed wireless solution is very compelling to both Dish and Sprint,” Tom Cullen, Dish executive vice president of corporate development, said in a press release. “We both bring distinct skills, not the least of which for Dish is a workforce of professional technicians who visit thousands of homes every day performing professional installations for both video and broadband.”

T = Technicals on the Stock Chart Are Strong

Sprint stock has seen a strong bid in the last couple of years. The stock is now trading at highs for the year and looks poised to continue. 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 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 options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Sprint options

57.21%

96%

93%

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

January Options

Flat

Average

February 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’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sprint look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-30.77%

-15.21%

27.59%

-1.22%

Revenue Growth (Y-O-Y)

-11.57%

0.31%

0.68%

3.24%

Earnings Reaction

3.74%

7.31%

-0.14%

-0.51%

Sprint has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been excited about Sprint’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

Sprint

AT&T

Verizon

T-Mobile

Sector

Year-to-Date Return

59.64%

-4.93%

-6.31%

15.00%

16.85%

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

Conclusion

Sprint provides communications services and technology to a wide variety of consumers and companies in the United States and its territories. The company and Dish are teaming up on a project that could bring broadband Internet to people living in remote areas with limited access. The stock has seen a strong bid in the last couple of years and is currently trading near highs for the year. Over the last four quarters, earnings have been decreasing while revenue figures have been increasing which has left investors excited about recent earnings announcements. Relative to its peers and sector, Sprint has been a year-to-date performance leader. Look for Sprint to OUTPERFORM.

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