Sprinting Past Competition

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

DAVID WEISSMAN, CFA
SENIOR TELECOM ANALYST
ZACKS INVESTMENT RESEARCH

TICKER: S (NYSE)
52-WEEK RANGE: 18.96–24.67
MARKET CAPITALIZATION: $56.65 billion
PRICE: $19.67

David Weissman is the senior telecom analyst at Zacks Investment Research, the second largest provider of independent equity research in America. Though the telecom sector has been out of favor, Mr. Weissman spoke to Elisa Mala of The New York Sun about why this particular company is poised to sprint past the competition.

What does the company do?

Sprint Nextel is a leading provider of business and wireless communication services. They recently sold off their local services business called Embarq, which strengthened the balance sheet.

Why do you like the stock?

There are a couple of reasons. First, the general telecom markets have been out of favor for some time. Combined with general weakness in overall equity markets worldwide, it’s an opportunity for investors looking for value to invest and partake in companies that have solid financials, solid market brand name, and product lines that will enable their businesses to succeed even in a volatile market.The company continues to generate cash and has a positive earnings trend. The last thing is that it continues to grow subscribers in line or above the market averages.

The near-term catalyst for this company has been the recent sell-off of their local telephone business, Embarq. The number one reason to invest in this stock is because they’re getting rid of their low-growth business and focusing on the high-growth areas, which are wireless and Internet.

What do you think the stock is worth?

I have a $28 dollar price target. I use what’s called Enterprise Value. You remove the cash and add the debts, so it establishes how much the company would be able to be purchased for. I then divide that figure by the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to determine the value.

What’s driving growth forward?

The net wireless subscriber count; just last quarter they added 1.3 million. They just completed their full acquisition of Nextel Partners. Nextel is responsible for the rural, non-metropolitan area subscribers, so that’s going to add additional subscribers to the count. Lastly, the trend for ARPU (average rate per user) continues to grow and the turn rate (customer switching levels) is relatively low on an industry-norm basis.

How do you expect the company to perform going forward?

They’re a very conservative company looking to sustain shareholder value. I believe that the company has not really made any decisions that would impact the value of those shares. If anything, at lower stock prices, with today’s market climate, it’s an opportunity for investors looking for value in a telecom space to partake in a company that is leading their field.

What are the risks associated with this particular stock?

There’s integration risk with the combination of Nextel’s network and Sprint’s previous CDMA-based network. There’s also competitive risk with the AT&T wireless unit. The telecom market has remained out of favor for quite some time.Any continuation with the sentiment would result in the stock lagging in terms of performance. The last thing is the global risk, the geopolitical events that may impact our rating.

What type of investor is the stock best suited for?

This is meant for a long-term value objective holder. It’s for people looking to sustain some value of risk, but with the potential for the upside to be greater.


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