Analysis of Sprint Nextel Essay

Sprint Nextel Corporation is principally a holding company operating principally through two divisions: Wireline and Wireless. Incorporated in 1938, Sprint is a communications company offering a range of wireless and wireline communications products and services that are designed and marketed to individual consumers, businesses, government subscribers and resellers. Its operations are organized to meet the needs of its targeted subscriber groups through focused communications solutions that incorporate the capabilities of its wireless and wireline services. Its services are provided through its ownership of extensive wireless networks, an all-digital global long distance network. The Company offers wireless and wireline voice and data transmission services to subscribers in all 50 states, Puerto Rico, and the United States Virgin Islands under the Sprint corporate brand, which includes its retail brands of Sprint, Nextel, Boost Mobile, Virgin Mobile, and Assurance Wireless on networks that utilize third generation (3G) code division multiple access (CDMA), integrated Digital Enhanced Network (iDEN), or Internet protocol (IP) technologies. The Company also offers fourth generation (4G) services utilizing Worldwide Interoperability for Microwave Access (WiMAX) technology through its mobile virtual network operator (MVNO) wholesale relationship with Clearwire Corporation and its subsidiary Clearwire Communications LLC (together Clearwire) and, in October 2011, it announced its focus to deploy Long Term Evolution (LTE) technology as part of its network modernization plan, Network Vision. Sprint Nextel’s headquarters are located in Overland Park, Kansas, United States. Dan Hesse is the President and C. E. O.  Sprint is a tier 1 global Internet access service provider. Sprint Nextel is the United States’ third largest long distance provider by subscribers. In 2006, the Sprint Nextel exited the local landline telephone business, spinning those assets off into a newly created company named Embarq, which CenturyTel acquired in 2008. Sprint owns a 47. 1% interest in Clearwire Corporation and also an 18% interest in NII Holdings, which operates under the Nextel brand in Argentina, Brazil, Chile, Mexico and Peru. Sprint Nextel was the first to offer a consumer available 4G phone, the HTC Evo 4G, in the United States on June 4, 2010. Prior to 2005, the company was known as Sprint Corporation. The company took its current name, Sprint Nextel Corporation, when it merged with Nextel Communications that year. Financial Performance for Periods 2008-2010 Over the three years under review, Sprint Nextel Corp. has revenue has dropped from $35. 6B in 2008 to $32. 2B in 2009, with a modest increase to 32. 5B in 2010. But overall Sprint revenue has been fairly consistent. Gross Profit margin has also been on a downward trend year over year; 2008 53%, 49% and 46%. Despite this trend Sprint has been performing better than the industry benchmark of 41%. EBITDA/Operating Income Margin has been consistently negative from -2. 44% in 2008 to -3. 15% in 2009, and -1. 63% in 2010. While this statistic is very worrisome, the company has been able to reduce selling, general and administrative costs over the three years from $11. 355B in 2008, to $9. 438B in 2009, to $9. 438B in 2010. Though this cost reduction imitative is very encouraging, Net Losses have been going in the wrong direction, increasing from-$2. 796B in 2008, to -$2. 436B, and -$3. 465B. Sprint’s debt ratio has hovered between 65% in 2008 to 71% in 2010. The company’s creditors would be concerned that there is not a greater cushion against losses in the event of liquidation, stockholders on the other hand would want more leverage because it magnifies expected earnings. Stockholders would be very concerned on the company’s return on common equity: which are -14. 03% in 2008, -13. 46% in 2009, and -23. 82% in 2010. From a cash perspective, Sprint has been managing it cash resources relatively well. There have been massive investments over this period most of which have capital expenditure ($3. 8B in 2008, $1. B in 2009, and $1. 9B in 2010). These investments in capital expenditure, highlights the firm’s serious emphasis on growing its product base, and improving the functionality and seamless integration of its technology. Stock Performance for Periods 2008-2010 Sprint’s stock price at the close of market in 2010 was $3. 77 which represents a 79. 31% drop from the period high price of $10. 53 at January 02 2008. The company’s stock price has reflected its struggling financial performance. The stock current 52 week range has been $2. 10-$4. 60, and beta of 1. 09. The stock beta measures the volatility of the security in relation to the volatility of the benchmark market indice (which in this case is the overall financial market) that the stock is being compared to. Beta measures the part of the asset’s statistical variance that cannot be removed by the diversification provided by the portfolio of many risky assets, because of the correlation of its returns with the returns of the other assets that are in the portfolio. Sprint’s stock Beta estimate Beta is calculated using regression analysis. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. Sprint’s beta of greater than 1 indicates that the security’s price will be more volatile than the market by 9%. However three of Sprint’s major competitors have signficantly better beta estimates; AT&T 0. 58, Verizon 0. 51 & Duetsche Telekom 0. 71 (Average Industry Beta 0. 60). When measured against the Industry, Sprint’s stock has more volatility and is more susceptible market forces. Conversely, most high-tech Nasdaq-based stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk.