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As Sprint Tops S&P 500, Where's the Buy?

Sprint Nextel shares jumped more than 20 percent since April, the most of any other stock in the S&P 500 in May, a month where the index dropped about 8 percent for its worst decline in a year.

Subscriber growth, the launch of the first 4G phone and a new Prepaid service through Wal-Mart is driving investor enthusiasm for this one time ugly cellular stepsister, which was in danger of bankruptcy after its botched merger with Nextel in 2005.

“Customer adds are increasing, Goldman Sachs just went to a ‘buy’ this week and the first 4G phone is launching next week,” said Brian Kelly, founder of Kanundrum Capital and a ‘Fast Money’ contributor. “I am a buyer at $4.50.”

Sprint shares have gained momentum against the rest of the market after the Goldman Sachs upgrade and securing a new $2.1 billion credit facility in the last two weeks. Apple, which released its iPad in 8 more countries today, is little changed on the month. Just 14 of the 80 technology companies in the S&P 500 posted gains this month.

“The EVO appears to be a real alternative to the iPhone,” wrote David Dixon, FBR Capital Markets analyst, in a note to clients this week. Pre-registrations for the June 4th launch of the 4G Phone “are the highest for any device in the company’s history.” Dixon has a $6 target price on the shares.

“HTC EVO 4G is a fantastic 3G device, but when you use it in our growing 4G coverage area, it becomes a multimedia powerhouse,” said Dan Hesse, the Sprint CEO and star of the company’s commercials, in a May 12th press release. “The EVO 4G experience is much like going from TV to HDTV.”

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Deutsche Bank analyst Brett Feldman timed the trade perfectly this month, recommending buying the shares on May 5, two days before the stock hit its low for May of $3.83.

“Sprint’s valuation continues to imply the business is in terminal decline and not, as we believe, turning the corner,” wrote Feldman at the time. The analyst noted that churn, a measure of customer departures, was the lowest for Sprint in the first quarter since 2006. He has a $6 target on the stock as well.

On May 13, Sprint Nextel announced it was partnering with Wal-Mart to offer a Prepaid service. With more than 95 percent of the U.S. population already with cellular service, this is the only growth area left in terms of subscriptions as more and more frustrated users tear up their long-term contracts for the pay-as-you-go plans that are the norm in Europe.

But before it’s declared the ‘Summer of Sprint’, investors may want wait for a pullback in the surging shares before buying, analysts and traders said.

“As a result of the recent run in Sprint Shares, new investors should choose to be selective with their entry point,” wrote FBR’s Dixon. “However, we continue to believe in the long-term turnaround story.”

For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.

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