Market Wakes up to Sprint’s Upside in Volatile Week

Sprint’s (NYSE:S) stock was quite volatile in the latter part of last week and the first half of this week. Last Friday, the stock declined by 20%, and then again this Monday by 8% after it announced plans to raise additional capital to fund the launch of its LTE service by mid-2012. The investors were worried that Sprint’s already leveraged balance sheet will become worse when it will pick up additional debt to meet this aggressive roll-out plan (see Sprint Plunges on LTE Expansion Costs, May Tap Capital Markets). This situation lead at least seven analysts to lower their estimates of Sprint’s stock (see Sprint’s Stock Could Double as LTE Plans Spook Analysts).

The markets initially completely ignored the fact that Sprint sold out of pre-orders for the 16GB version of Apple (NASDAQ:AAPL) newly launched iPhone, iPhone 4S. It seems the markets are concerned that the iPhone addition will be dilutive to Sprint’s margins as Apple might have forced Sprint to pay higher subsidies (see Sprint’s Huge Bet on the iPhone Threatens to Sink Stock).

Yesterday, finally the stock rebounded and jumped by 7% and today another 8% when Sprint’s chairman James Hance acknowledged the mistake for failing to disclose the future costs of selling iPhone during the October 7th meeting at New York. He also mentioned that the company will provide with this information to investors this month. ^[1] Investors at the conference were dissatisfied with the company’s refusal to provide a forecast on the Apple guidance, and some felt that the company was abandoning long-time partner Clearwire (NYSE:CLWR).

See our complete analysis for Sprint stock here

Which direction could Sprint’s stock take?

We believe the stock could remain volatile until the company clarifies all the uncertainties surrounding its strategy. However there are some positive trends that could emerge for Sprint. If the company is able to attract iPhone users through focused marketing of its unlimited data plans, and at the same time increase speeds and reduce costs by using its LTE network in the long term, Sprint’s stock could continue to climb.

We are quite optimistic about Sprint’s prospects and have a $4.73 price estimate for Sprint stock, which we believe is almost a two bagger at the current levels.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Sprint Will Reveal IPhone Impact to Fix ‘Mistake’, Chairman Hance Says, Bloomberg, October 12th, 2011 [↩]