To what extent can Sprint Corp (NYSE:S) stock sustain its dominant rally? This has been the biggest question on investors’ minds as S stock — up 132% in twelve months — has largely outperformed its larger rivals AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ).
Sprint stock, which has responded to the operational improvements under the leadership of CEO Marcelo Claure, has made investors rich.
S stock closed Friday at $8.50, yielding gains of more than 70% since rising from a June 2016 low under $5 per share. FBR Capital analyst David Dixon, who reiterated his Outperform rating on the stock and raised his earlier this year, still expects some 30% returns in the next eight months.
S Stock: Can You Hear the Profits Now?
Dixon sees Sprint benefiting from a combination of increased subscriber growth and stronger free cash flow in the quarters ahead. InvestorPlace writer James Brumley, who calls the situation with Sprint stock “really grim”, disagrees. Not a fan of Claure, Brumley believes heavy short covering has been a major factor in the gains Sprint stock has enjoyed. That’s tough to dispute given that some 20% of Sprint’s float is in the hands of short sellers.
But does that takeaway from the underlying fundamental improvements the company has made? In its fiscal third quarter, S grew customers with 577,000 total net additions. And not only did Q3 revenue grow nearly 5% year-over-year, easily beating Street expectations, but Sprint boosted its full-year outlook. Notably, the subscriber additions, which grew at the expense of Verizon, came from Sprint’s highest-profit contribution category, compared to those of Verizon and AT&T — albeit much larger — which resulted from promotions and discounts to grow subscribers.
Once thought to be on the verge of bankruptcy, Sprint’s total liquidity reached $9.1 billion as of the third quarter, including $6.1 billion in cash, equivalents and short-term investments. And that’s to say nothing about how the so-called “” — touting the reliability of Sprint’s networks compared to Verizon and AT&T — continues to resonate with wireless consumers. Known for his “Can you hear me now?” line, Paul Marcarelli has been a hit for Sprint.
The company’s string of successes has given it the confidence to want to end its long-time offer in which it charges half the price of certain plans its rivals offer. Sprint’s new pricing plan now it used to offer as an incentive to lure rivals’ customers. This is in response to the unlimited data plans AT&T and Verizon has begun to offer. With subscriber growing at a strong pace, ending the 50% discount will mean higher profits in the quarters ahead.
Bottom Line for Sprint Stock
Sprint stock has declined about 12% since reaching its 52-week high of $9.65 in January. And that has created a solid buying opportunity, especially as the company continues to benefit from its combination of cost cuts and network investments. And with the possibility of a merger with T-Mobile US Inc (NASDAQ:TMUS) still on the table, there are tons of growth catalysts that can send S stock towards $10 to $10.50 per share, delivering 17% to 23% returns in the next 12 to 18 months.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
