Sprint Shares Soar as Carrier Steals Customers from AT&T, T-Mobile and Verizon

Wall Street hears Sprint's scintillating subscriber gains, but the carrier's bloated balance sheet remains an area of concern.
By Chris Nolter ,

Shares of Sprint (S) - Get Report surged on Monday, as CEO Marcelo Claure gave shareholders good news about the country's fourth-largest wireless carrier.

Sprint smashed Wall Street forecasts for subscribers in the first quarter of fiscal year 2016 and showed progress with cost cutting, even if its balance sheet still holds close to $37 billion in debt.

The stock rose $1.24, or nearly 27%, to $5.85 per share in Monday afternoon trading. The stock hit a new 52-week high of $5.93 earlier in the day. Year to date, Sprint shares are now up 61%.

Sprint gained 173,000 net phone subscriptions with post-paid, rather than pre-paid, bills, while analysts had forecast 79,000. The company also had impressively low churn, or customer defections. Revenues of $8.01 billion were slightly ahead of expectations of $8 billion, though sales from the core wireless business declined to $6.1 billion. A net loss of 8 cents per share matched forecasts.

"We had the highest postpaid net additions for a fiscal quarter in the last nine years," Claure told investors. "This was driven by our best-ever postpaid phone churn in the company's 20-year history in wireless, and continued growth in postpaid phone gross adds." For the first time in five years, more customers left AT&T (T) - Get Report , T-Mobile USA (TMUS) - Get Report and Verizon (VZ) - Get Report for Sprint than the other way around.

"We're starting to break through with one of the most successful marketing campaigns in Sprint history," Claure said. The company hired former Verizon can-you-hear-me-now? pitch man Paul Marcarelli, and is offering newcomers 50% price cuts.

Jennifer Fritzsche from Wells Fargo Securities suggested that "the turnaround story is taking shape" in a Monday report.

"Sprint's emphasis on cost reduction is being seen and its focus on subscriber growth resulted in [the] best handset churn levels in company history," she wrote. 

Claure touted Sprint's $11 billion in liquidity, which will be handy as it addresses nearly $37 billion in total debt.

"I am a believer that balance sheets always trump everything," said Jim Cramer, founder of TheStreet.com. "I look at the Sprint balance sheet and it's concerning to me. Can the stock go to six? Yes. Do I want to invest in the stock? No, I want to speculate in it. That's very different."

While Craig Moffett of MoffettNathanson acknowledged improvements in Sprint's business, he's still setting his price target at just $2 per share.

The analyst cited Sprint's $473 million in quarterly capital expenditure on its network. "[I]n our long careers, we've never seen a [capex] number as low as Sprint's Q2 total," he wrote. The company's quarterly level was an eighth of Verizon's, Moffett noted, though Sprint's subscriber base is "roughly half as large."

Moffett described a "tightrope" that Sprint must walk.

"They are trying to restore a company to growth (even with positive subscriber growth, core wireless service revenues are still down 6.9% [year over year]) while simultaneously husbanding cash to stave off insolvency," he wrote.

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