What Do These Factors Say About Sprint’s Stock?

With shares of Sprint (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 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 posted earnings recently and the company reported net losses of $1.6 billion, up from $1.4 billion a year earlier. The company was hurt by the $623 million it cost to close Nextel, which also cost Sprint 1.05 million subscribers. However, revenue increased to its highest point ever of $7.2 billion, and the company has big plans for the cash it’s getting from SoftBank and wireless holdings from Clearwire.

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 prices not seen for several years. 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 slightly 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

42.32%

50%

48%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-15.21%

27.59%

-1.22%

-160.00%

Revenue Growth (Y-O-Y)

0.31%

0.68%

3.24%

5.16%

Earnings Reaction

7.31%

-0.14%

-0.51%

-1.77%

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 announcement.

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

23.42%

-0.24%

9.71%

41.28%

17.97%

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 street is excited about a recent earnings announcement. The stock is currently trading at high prices not seen for several years. Over the last four quarters, earnings have been decreasing while revenue figures have been increasing which has left investors with mixed feelings. Relative to its peers and sector, Sprint has been a year-to-date performance leader. Look for Sprint to OUTPERFORM.

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