U.S. News

Sprint Shares Tumble on Disappointing Guidance


Sprint Nextelshares fell as much as 11% in early trading after the No. 3 U.S. mobile phone service provider gave a tepid outlook for 2007 and disappointing fourth-quarter subscriber numbers.

The company said on Monday its revenue would be flat or slightly higher in 2007, while profit remained under pressure due to lower margins and spending on its networks. It also said it would cut its full-time workforce by 5,000 jobs, or about 8%.

Sprint said it lost 306,000 postpaid, or contract customers in the fourth quarter of 2006, which was higher than the 200,000 forecast by Stifel Nicolaus analyst Christopher King.

"From a momentum perspective, we wouldn't be surprised to see a near-term bottom occur sometime this week as the market digests the new guidance and investors begin to perceive this as the last spate of bad news in the near term," King, who has a "hold" rating on the stock, said in a research note.

"But," he added, "from a fundamental perspective, we still do not see compelling value in the name at current levels, given our cautious view on U.S. wireless growth in late 2007 and beyond, as well as the company's ongoing operational challenges and our skepticism regarding near-term positive ROIs (return on investments) from the company's looming WiMax investments."

"Over the next few quarters ... we expect Sprint to continue to lose postpaid share to the benefit of the other major domestic carriers," John Hodulik, an analyst at UBS, wrote in a research report.

Hodulik also noted Sprint's fall in average revenue per user (ARPU) in contrast to rising ARPU at rival Verizon Wireless. Verizon is a joint venture between Verizon Communications and Vodafone Group, while Cingular is owned by AT&T.

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King said Sprint's guidance for 2007 was particularly disappointing, with adjusted operating income before depreciation and amortization of $11.0 billion to $11.5 billion, below his estimate of $12.9 billion.

He also said Sprint's forecast of capital spending at $8.5 billion was well ahead of the Wall Street consensus of $6.7 billion and his estimate of $6.3 billion.