Sprint (S) Raising Guidance and Cutting Costs - FBR

FBR analyst, David Dixon, sees Sprint (NYSE: S) turnaround story continuing with another quarter of positive postpaid net add growth and historically low churn. No change to Outperform rating or $6 PT.

As a result of cost savings and revenue growth, the adjusted EBITDA trajectory is improving faster than expected. Management raised fiscal-2015 adjusted EBITDA guidance to $7.7B–$8B. Its preliminary estimate for fiscal-2016 adjusted EBITDA is in the range of $9.5B–$10B, substantially higher than consensus estimates.

Sprint's turnaround story continues with another quarter of positive postpaid net add growth and historically low churn. Recent pricing action, coupled with evidence of broader network improvements, bodes well. Positive subscriber momentum confirms that Sprint's turnaround is beginning to gain traction; we are encouraged that roughly the majority of Sprint's customer base is using tri band devices. Sprint achieved positive net adds with its aggressive 50%-off offer despite recent price increases (unlimited data plan increased to $70/month from $60/ month). This offer appears to be accretive, as many customers are buying additional data for a similar price they paid to Verizon and AT&T.

Lack of FCF continues to drive the network strategy, which is getting underway at a lower cost trajectory than expected by the market; Sprint provided more details around the new device lease facility in partnership with SoftBank. Looking ahead, we see an improved liquidity position as Sprint extends its leasing focus to the financing of cell site installation and equipment on more favorable terms than Sprint's current, unsecured, high-yield bond rate, which should further improve Sprint's cost structure.

For an analyst ratings summary and ratings history on Sprint click here. For more ratings news on Sprint click here.

Shares of Sprint closed at $2.99 yesterday.

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