Foolish Forecast: Sprint Nextel's Turnaround Attempt

Tomorrow morning, investors will get another peek at the books of wireless services provider Sprint Nextel (NYSE: S  ) when the company reports first-quarter earnings. Let's take a look at just what's on tap for the company.

What analysts say:

  • Buy, sell, or waffle? A total of 33 analysts follow Sprint Nextel. Six of them rate the stock a buy, while 20 say to sit tight and hold and seven say to sell. In our Motley Fool CAPS investor database, more than 450 of our 50,000 users have rated the stock, giving it a two-star rating overall.
  • Revenues. Wall Street is looking for Sprint Nextel to report $10.3 billion this quarter, an 11% drop from last year.
  • Earnings. The average analyst is expecting $0.22 per-share earnings, significantly down from the $0.35 reported a year ago.

What management says:
Sprint Nextel has been a lightning rod for criticism from industry analysts lately, as the company has struggled to reap the hoped-for benefits of the merger between Sprint and Nextel in 2005. Management of the company acknowledges the difficulties and deterioration of its wireless services business and has "... increased funding of business operations and network investments" in an attempt to turn the ship around. CEO Gary Forsee noted earlier this year, "We are seeing early returns from these investments as we widen our lead in wireless data services on the CDMA platform and with the iDEN network now delivering substantially improved call quality metrics."

What management does:
Operating metrics for the wireless business at Sprint Nextel clearly show the deteriorating trend of their services. Sprint Nextel has been garnering less revenue from each subscriber and has been losing more of them each quarter as churn rates have gone up. It's somewhat difficult to compare Sprint Nextel metrics to peers Verizon Wireless (NYSE: VZ  ) , Alltel (NYSE: AT  ) , or AT&T (NYSE: T  ) since the company does not directly report total churn and ARPU figures for all the different classes of wireless customers. Looking at these metrics for both the prepaid and postpaid subscriber bases, which make up the bulk of its customers, gives a good indication of what's happening there.

Metric

12/05

03/06

06/06

09/06

12/06

Net Subscriber
Additions*

2,021

1,338

704

233

742

Churn

2.3%

2.3%

2.4%

2.8%

2.7%

ARPU

$61.24

$60.07

$59.75

$58.64

$57.55

*In thousands. Source: Sprint Nextel

One Fool says:
All eyes will be on Sprint Nextel's wireless metrics this quarter for some sliver of hope that the company is turning things around. While the company has been talking a lot about exciting developments of its next-generation high-speed wireless network and a prospective iPhone killer, all the chatter hasn't diverted investors' attention from the issues today. If the company reports another quarter of deteriorating results, the stock will likely continue to languish until the company can get a grip on its operational issues.

Dial up more Foolishness:

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Fool contributor Dave Mock does the hokey pokey and shakes it all about. He owns no shares of companies mentioned here. Dave is the author ofThe Qualcomm Equation. The Fool's disclosure policy puts its whole self in, and that's what it's all about.


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