Did Sprint Just Become Telecom's Best Buy?

Last week, in the wake of AT&T's (NYSE: T  ) and Verizon's (NYSE: VZ  ) earnings reports, I asked which of the two stocks you'd prefer to own as investors. Close to 650 of you -- or 49% -- voted for AT&T. Verizon raked in 40% of the vote.

Today, I'm asking whether this morning's report from Sprint Nextel (NYSE: S  ) changes your view. Would you rather own the upstart than Ma Bell or Big Red? We'll get to the poll in a minute. First, let's review what Sprint said about its first quarter.

Revenue grew 3% year over year, to $8.3 billion, resulting in a lower-than-expected $0.15-per-share net loss. (Analysts had been calling for a $0.22-per-share loss, Bloomberg reports.) Free cash flow declined sharply because of working capital investments and a $100 million pension contribution. Taking all that into account, here's how the three major telcos compare financially:

Metric*

AT&T^

Sprint Nextel^

Verizon^

CAPS stars (out of 5) ** ** ****
Revenue growth 1.5% 2.0% (1.4%)
Normalized net income growth (10.1%) Not material (2.0%)
Gross margin 57.4% 46.1% 60.0%
Return on capital 6.9% (0.2%) 7.8%
Levered free cash flow $8,736 $2,802 $12,570
Dividend yield 5.60% No dividend 5.30%
Forward P/E 13.11 (5.78) 16.95
PEG ratio 3.39 (1.29) 2.02

Source: Capital IQ, a division of Standard & Poor's.
* All metrics calculated over the trailing 12 months.
^ Except for percentages, all numbers in millions.

Sprint still lags; it hasn't produced a profit and doesn't pay a dividend. But that's not the whole story. For all its financial foibles, customers still like Sprint's network. More than 1.1 million wireless subscribers joined its rolls in the first quarter, its highest haul in five years.

Investors are right to be impressed. Sprint retained customers and attracted new ones in spite of discouraging reports about the relative performance of its WiMAX network and Apple's (Nasdaq: AAPL  ) efforts to win converts to the Verizon iPhone.

Does this make Sprint a stock worth buying? I'm asking you. Please vote in the poll below, then leave a comment to let us know which telecom stock you'd buy.

You can also rate AT&T, Sprint Nextel, and Verizon in Motley Fool CAPS and keep tabs on the companies by adding all three stocks to your watchlist for free, personalized stock tracking.

AT&T is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended members create a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Apple and is also on Twitter as @TheMotleyFool. Its disclosure policy wants just a click a day. Is that too much to ask?


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  • Report this Comment On April 28, 2011, at 4:51 PM, mtkk2318 wrote:

    I just recently dropped 3 Verizon phones for 3 smartphones with Sprint. The pricing was much better and we haven't noticed any difference in the service. We went with 2 Android and a Blackberry for our new devices. These were the phones we wanted and even though they were available with the other carriers the bottom line made the difference.

    I am not an employee, I don't own the stock and don't plan on buying it or any other stock anytime soon. Sprint just needs to hang on and "blow their own horn" until people give them a try.

    This country needs to have at least 3 big players in the wireless market so as not to allow collusion in pricing among the remaining players. This is in the best interest of consumers.

  • Report this Comment On April 28, 2011, at 6:59 PM, z3k3s7 wrote:

    Recently, I had the opportunity in quite some time to purchase stock in the market. I bought S, T, CLWR, and RIMM. I did not buy these stocks for the dividend, but for the fact that I disagree with the opinion that S cannot survive if the T/T-Mobile merger (it will) is successful. According to this opinion, S has nowhere to go in the market and Verizon could be the beneficiary of an S demise if it fails to buy CLWR. Kindly, note that S bought over 2 billion dollars of services from CLWR through 2012 about the time the T/T-mobile merger should be final. Moreover, Verizon, even if could buy S now or at a future date, would find such a purchase unfeasible; S contains a built in poison pill. The only player that makes sense in this wacky scenario is S, who has the most likely opportunity to benefit should there be an order to divest from the SEC ( quite likely). Verizon cannot be a beneficiary (anti-trust issues). RIMM which needs not only applications for its new tablet, also needs a wireless network to maintain its strict security protocols also needs a platform to stand on. I see S poison pill and all, enterprise ready. I bought as many shares as I could and will continue to buy in the future until I reach 1K on each.

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