Sprint Handling Increased Competition Well
Sprint ended 2013 on a relatively solid note but investors should remain cautious and wait for a more attractive price before diving in, says Morningstar’s Mike Hodel.
Sprint (S) ended 2013 on a relatively solid note, returning to postpaid customer growth during the fourth quarter while sharply improving margins versus a year ago. The results during the quarter and management's outlook for 2014 were both largely in line with our expectations. We don't expect to make a material adjustment to our fair value estimate, and our moat rating is unchanged. Speculation regarding a potential transaction with T-Mobile US (TMUS) continues to whip Sprint's shares around. While we believe a merger is critical to improving the competitive position of both firms, we see long odds to completing a transaction in the near term. We remain cautious on Sprint and would look for a more attractive price before considering the shares.
Sprint added 58,000 postpaid customers during the fourth quarter, a surprisingly strong result given the turmoil at the firm recently (closing the Softbank and Clearwire deals over the summer while investing aggressively in the network). While tablet sales padded customer numbers, we estimate that Sprint lost only about 150,000 postpaid phone customers during the quarter, a nice improvement versus a year ago. This performance comes despite the resurgence of T-Mobile as a competitor over the past year and actually bests the results that AT&T (T) posted during the period (we estimate the firm lost about 450,000 phone customers). Sprint's management expects to lose postpaid customers during the first half of 2014, with growth returning in the second half as Network Vision winds down.
Michael Hodel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.