Put an S on Your Chest

Written by GSCR Staff   
Thursday, 25 April 2013 10:25

Once in awhile, a once mega-cap or large stock will come into play in our universe.  While Sprint Nextel Communications, Inc. (NASDAQ – S - $7.09) is in our price range its market cap is $21.5 billion.  Is this a unique opportunity to go long on a ‘cheap’ stock or just something to avoid on a downward spiral?

On the plus side, Sprint is now the subject of a bidding war.  This is almost always good for the stockholder of the ‘acquired’.  On April 15th, Dish Network (NASDAQ – DISH) offered $25.5 billion in a buyout, as part of an attempt to block the sale of 70% of Sprint to Softbank Corp. of Japan, a deal to which Sprint in October.  DISH wants the cell phone technology to branch out its broadband services to phones, tablets and the Internet.  The stock shot up nearly 14% to just over $7.00 on 440 billion shares traded on that day alone.  Now, Sprint executives have retained Bank of America to advise on the deal or deals, and there could be an all out bidding war.

On the business side Sprint-Nextel has never fully recovered from bad business decisions and poor management, let alone poor call quality and customer service.   Management bet the farm on a strong alliance to Blackberry (NASDAQ – BBRY), which proved to be a huge mistake as the ‘touch screen’ technology of the Droid and iPhone was far superior in customer preferences over the long haul.  Additionally, the Company never really addressed the call quality and drop issues consumers constantly cited as reasons for dropping service.  Add these up and Sprint has had at least 3 losing years in row, and estimates for 2013 and 2014 are even grimmer.

So in summary the business and fundamental side say sell, bides have a keen interest in Sprint’s technology, spectrum, and customer base.  While it is unclear what kind of premium from current levels an investor might eke out in a buyout, we would bet on Sprint’s shares. It doesn’t hurt that the chart analysis is very bullish for the short, intermediate, and long term.

Have a great day!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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