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Happier Customers, Hotter Phones Help Sprint

We have raised the Trefis price estimate for Sprint's stock from $4.49 to $4.79.
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Life is getting better for Sprint Nextel (S) - Get SentinelOne Inc. Class A Report, a U.S. wireless provider that competes primarily with AT&T (T) - Get AT&T Inc. Report and Verizon (VZ) - Get Verizon Communications Inc. Report. After years of subscriber flight resulting from shoddy service and a lackluster product line, Sprint nabbed two prestigious customer service awards recently and has released hit phones like the HTC EVO.

In Sprint's generally positive earnings report for the second quarter of 2010, management pointed to rapid customer growth and rising average monthly revenue per user (ARPU). Based on these trends, we have raised the Trefis price estimate for Sprint's stock from $4.49 to $4.79. Our analysis follows below.

Happier customers...

According to the 2010 American Customer Satisfaction Index, Sprint's customer satisfaction levels have risen more than any company's in any industry over the past two years. Meanwhile, a recent J.D. Power Wireless Business Satisfaction survey named Sprint as the only carrier whose scores improved in the small/mid-size business category in 2008, 2009 and 2010.

Sprint must provide a superior customer experience to get its postpaid subscription business back on track after three consecutive years of market share declines. You can drag the trendline in the chart below to create your own estimate for Sprint's monthly subscriber base (so-called "postpaid" subscribers) and see how it affects the company's stock price.

...buying fancier phones

Sprint's improving handset portfolio is attracting more subscribers. Notably, the HTC EVO smartphone has been a hit for Sprint. This is important because HTC EVO customers use about 3.5 times more data than average Sprint subscribers, according to the company. As Sprint's subscriber base adopts these devices, we can expect the company's average revenue per user derived from data to increase.

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The chart below shows the sensitivity of Sprint's stock to changes in the company's average monthly revenue per user of Internet and SMS services. You can drag the trend-line to create your own estimate of Sprint's revenue from data services and see how it impacts the company's share value.

Currently we forecast an average growth of approximately 4.8% in Sprint's ARPU from data services, amounting to $19.40 by the end of our forecast period. Even a slight increase over and above this growth rate could yield a 4% to 5% upside for the company's share value.

You can see

the complete $4.79 Trefis estimate for Sprint's stock price here.


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