Sprint May Finally Be Ready for Lift-Off as the Bears Descend

NEW YORK (TheStreet) -- Right now it seems no one likes Sprint (S).

Its decision to stop pursuing a merger with T-Mobile US (TMUS) caused a drop of 20% in the shares in just one day. Sprint opened today at $6, then dropped 10 cents, a price last seen in October. It is now at $5.93, down 45% for the year to date and down nearly 15% for the past 52 weeks. Most analysts have moved on to looking at other potential T-Mobile merger partners. 

Having replaced long-time CEO Don Hesse with Brightstar founder Marcelo Claure, Sprint has become a bear darling, with one Wall Street Journal writer calling for a further 20% drop in the stock price. 

It's when companies wash out like this and everyone is talking doom and gloom that my own Spidey Sense starts wondering whether there's a bargain to be had.

Sprint currently controls 55 frequency spectrum blocks, most of them in the 1.9 GHz range. But it also has 101 Mhz of spectrum in the 2.5 Mhz range, through Clearwire, along with 800 Mhz spectrum from Nextel, which had some reporters calling it a "spectrum powerhouse" just a year ago. The FCC has added this spectrum to its "spectrum screen," which it uses in deciding whether to approve new spectrum purchases.  Sprint would like some of the low-frequency spectrum coming available in a future FCC auction to build-out its rural services.

Generally, however, spectrum is not Sprint's issue.

Hesse's last job at Sprint was "Network Vision," a network upgrade plan that has brought LTE broadband capability to 230 markets, and lets it combine the old Nextel frequencies at 800 Mhz with Clearwire's 2.5 GHz holdings and its 1.9 Mhz frequencies. The result will be "Sprint Spark," a mobile service capable of 50 Mbps service and the potential of running at 2 Gbps, covering 100 million points of presence (POPs) by the end of this year. Phones capable of using that tri-band network are now coming out. 

This tells me that capacity is not Sprint's issue.

SoftBank, through which Masayoshi Son bought most of Sprint, still owns about 34% of Alibaba, which goes public next month. Son owns other Alibaba shares personally. Alibaba values itself at $130 billion, but Piper Jaffray analyst Gene Munster thinks it could be worth $221 billion.

This tells me capital is not Sprint's issue. The risk is that SoftBank could inject that capital by diluting current shareholders, but when capital gets injected into a company don't shares usually go up in response?

Even with its "troubles" Sprint had revenue of $8.789 billion for the June quarter, which would translate to $31 billion for the year, more than its current market cap of $28.9 billion. It turned a small profit in the second quarter despite the network build-out. AT&T (T) and Verizon (VZ), meanwhile, are each worth about 1.5 times their annual sales.

Sprint's problem is said to be profitable customer acquisition, and this is where Claure comes in. Brightstar, which will become a wholly-owned subsidiary of SoftBank when Claure takes over at Sprint next week, was built by re-selling phones and building market share for the carriers they were linked to. The company had sales of $10.5 billion last year, Sprint says.

Hesse was an operator. Claure is a marketer. He has a track record showing he knows how to acquire customers, not through splashy ads and special deals but with a sound ground game. How will he proceed here? A deal with Google (GOOG) to sell business apps may offer a clue.

Just as magazines can "buy" circulation with special offers, so mobile networks can buy revenue by advertising and dropping prices. T-Mobile US has proven that. But Claure has done something different, building profitable revenue for carriers by distributing phones, and service contracts, individually. If he can sell Sprint Spark phones in bulk to Sprint business customers it means not just subscriber growth but profitable subscriber growth. His track record indicates he can do that.

So Sprint has built out its network, it really has plenty of spectrum, there's plenty of capital behind it held by ambitious owners, and it just hired a marketing guy who can build the subscriber count profitably. The stock is down 40% from where it was at the start of the year. So where do you think it goes from here?

Susan Welsh de Grimaldo of Strategy Analytics, who has been in several confidential Sprint briefings, gave me a wide-ranging interview on the company's prospects, calling them "interesting," adding that "it all depends on how they execute." Fair enough. Hesse has executed on the technical side, Claure has proven he can execute on the marketing side.

So I think you can buy some Sprint at current prices, and your patience will be rewarded.

At the time of publication, the author was long GOOGL, although positions may change at any time.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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