Q2 Preview: Despite 4G Delays, Sprint (S) Could Dial-In Solid Quarter

Wireless communications giant Sprint Nextel Corp. (NYSE: S) shares are modestly in positive territory Wednesday ahead of its second-quarter earnings report.

Before the market opens Thursday, Sprint is expected to report a loss of 13 cents per share on revenue of $8.3 billion. The number would cut the loss from last quarter by 40 percent, and be about 13 percent better from a loss of 15 cents per share reported last year over the same period. Revenue has made a constant improvement, from $8.03 billion last year, to $8.31 billion last quarter.

Sprint gained 16 percent in the quarter and is down nearly 4 percent since. Shares are up more than 22 percent this year.

Data from Bloomberg has 15 analysts at Buy on the Sprint, 12 with a Hold, and six suggesting to Sell. The analyst price target average is $5.60 with a low of $4 and high of $8. Sprint shares have traded in a range of $3.70 to $6.45 over the last 52-weeks.

Sprint has been putting up a fuss over the last several months following the proposed acquisition of T-Mobile by AT&T (NYSE: T). CEO Dan Hess has done just about everything possible short of holding his breath until someone deems it against antitrust regulation and not in the best interest of the U.S. mobile market. No final decision on the M&A has been made yet.

Analyst Commentary

• Deutsche Bank sees a loss of 16 cents per share on revs of $8.26 billion. Post-paid ARPU should be $56.25, while prepaid will come in around $27.50. Total sub adds will be 450,000, with prepaid churn of 5 percent and post-paid churn of 1.76 percent.
  
  On post-paid: "We expect zero post paid net adds, which would be the 4th quarter where this sub base remained relatively stable. Our ARPU estimate ($56.25) implies accelerated YoY growth (2.7% vs. 2.5% in 1Q) due to price increases last quarter. Churn (est 1.78%) should benefit from the 2-year anniversary of Sprint’s record-low post paid gross adds in 2Q09 (resulting in record-low contract terminations in 2Q11)."
  
  On prepaid: "We est 300k prepaid net adds, up 73% YoY. Our 2Q store checks revealed solid sales of Androids at Boost and data-centric plans at Virgin. We could see potential upside to prepaid net adds due to strong sales of Assurance, a low-end offer that may have gained share based on weak 2Q adds at low-end competitor TracFone."
  
  
• Citadel Securities sees a loss of 9 cents on revs of $8.34 billion. Citadel points to Radio Shack (NYSE: RSH) attributing much of it's quarterly decline to postpaid sales at Sprint. "Although we believe RSH's comments are being interpreted negatively by the market, we view this as a positive data point, as it lends support to our belief that Sprint's subsidy expense should moderate even as subscriber and ARPU trends improve. Slower upgrade activity should not impact Sprint's net adds, which are a function of gross adds (new customers) and churn; we note that RSH did not comment on either of these metrics."
  
  Citadel notes churn should be limited: 1) as Sprint's competitors have also pulled-back on upgrade offers, and 2) a large portion of Sprint's based is already lonced-in with two year contracts.
  
  
• Collins Stewart is looking for a loss of 5 cents per share. Collins says, "for the first time in the past several quarters, we believe Street consensus now reflects the likely reality for the company – margins that consistently decline throughout the year before possibly improving."
  
  Collins is looking for post-paid net adds of (59,000), and prepaid net adds of 407,000. ARPU will be $56.09 for post-paid and $28.37 prepaid. Post-paid churn should be 1.78 percent, while prepaid should be 4.7 percent.
  
  
• Kaufman Bros. sees a loss of 9 cents per share on revs of $8.41 billion. Kaufman sees post-paid net adds of 20,000 and 400,000 prepaid net adds. Post-paid churn will come in at 1.8 percent, and prepaid will have 5 percent. ARPU for post-paid should come in at $56.68, and $27.70 for prepaid.
  
  "We continue to anticipate a network sharing agreement between Sprint and Clearwire (Nasdaq: CLWR) as we believe deviation from the existing strategy with Clearwire might only add confusion to Sprint's outlook rather than improve it. Sprint has now delayed its 4G strategy update into the fall."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of the release.

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