Sprint Making Growth Strides

It was a good time to be a telecom analyst in the mid-to-late 1990s; that was, before the huge bubble burst. The "Big 3" in those days were AT&T (NYSE: T  ) , Sprint (NYSE: FON  ) , and WorldCom. In truth, part of the slow death of the industry was brought on by the debilitating impacts of residential long-distance slowdown.

Fast-forward to 2004, and these telecom services companies can't run away from the revenue drag called long distance fast enough. You would think that a company named Sprint would be quicker to respond than its competitors, but they all were slow to adapt to market shifts. Sprint finally wrote down the value of its network assets by $3.5 billion in its just-released third-quarter results, which translates into a pre-tax charge, to lessen its exposure to its long-distance operations.

The good news for Sprint is that its worst days might be actually be behind it; the company reported a 26% increase in earnings for the third quarter (before the charges) to $0.24 per share from $0.19 last year (and also beat the consensus estimate by $0.03). Although the long-distance operations continue to struggle amid competition, the wireless and DSL/Internet customer additions remained strong.

Wireless revenues were up nearly 13%, and the company now has more than 23 million subscribers. Sprint is also joining with various cable companies to bundle its national phone service to nearly 20 million households. The company is still trying to push to become the "service provider of choice," but consumers tend to change their phone companies as often as they change their shoes (price wars will do that to you).

Sprint was feeling good about its prospects this morning, as it bumped up its forecast of 2004 revenue growth to 4% to 5% from the previous expectation of 3% to 4%. This represents a decent move for a company that has been struggling to produce top-line growth. This positive impact is expected to trickle down to produce earnings per share of up to $0.86, which is materially higher than the current estimate of $0.79.

Consolidation is definitely on the horizon for the telecommunications industry and its band of battered warriors. Look for companies such as Motley Fool Stock Advisor recommendation SBC Communications (NYSE: SBC  ) and Verizon (NYSE: VZ  ) to continue battling while the older companies merely try to heal their wounds. Sprint shares, which are trading at 20 times the 2005 earnings estimate of $1.04 per share, are fairly valued relative to the growth forecast but are reasonably attractive as an income investment when considering the 2.43% dividend yield.

Don't hang up on these additional telecom views:

• For Sale: Giant Phone Company
• So Long, Long Distance
• Ma Bell Means Business?

Fool contributor Phil Wohl spent more than 12 years on Wall Street, with a bunch of that time as a telecom analyst. He has no stake in any firm mentioned above.