Explaining The Recent Sprint Rally

Sprint (NYSE:S), the fourth largest U.S. wireless carrier, has seen its stock price rise by close to 15% over the last week and by approximately 30% in the last three months, outperforming other large cap wireless names. Below we outline some of the likely reasons for the rally.

We have a $4 price estimate for Sprint, which is slighly below the current market price.

See our complete analysis for  AT&T | Verizon | Sprint | T-Mobile

• Developments at Sprint’s majority shareholder Softbank have been a key driver of the stock over the last few days. Earlier this week, SoftBank founder and CEO Masayoshi Son said that he would stay on for another five to ten years, instead of retiring in favor of the company’s president Nikesh Arora. Son noted that one of his key priories in his remaining time would be to develop Sprint to its “true potential,” signaling a vote of confidence in the company.

• Separately, Softbank is selling a majority stake in Supercell, a mobile game developer, pocketing roughly $7.3 billion in cash. ^[1] This liquidity infusion could potentially give Softbank more flexibility in backing Sprint.

• Sprint’s operations have also been improving in recent months. The carrier added a net of 22k postpaid phone customers during the quarter ended March 31, marking its third straight quarter of positive net adds, driven by promotional schemes, while industry leaders Verizon and AT&T both lost postpaid phone subscribers. This positive subscriber momentum could drive revenue and earnings growth over the long term.

• Sprint has also been focusing on shoring up its financials and cutting cash burn. On the cost front, Sprint is targeting a sustainable reduction of $2 billion or more in run-rate operating expenses exiting fiscal 2016. The company is also looking to conserve liquidity by creating handset and network equipment lease vehicles.

• Separately, its important to note that Sprint’s high financial leverage and relatively low stock price also make its equity value highly sensitive to new developments.

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1. SoftBank to Sell Supercell Stake at USD 10.2 Billion Valuation, BusinessWire, June 2016 [↩]