Foolish Forecast: Sprint Nextel's Spinning Wheels

Wireless services provider Sprint Nextel (NYSE: S  ) will be transmitting third-quarter earnings before the market opens tomorrow. Let's hop off the edge of our seats and dig into what's expected from the company.

What analysts say:

  • Buy, sell, or waffle? The 29 analysts who follow Sprint Nextel haven't changed their position on the company much lately. Six of them say buy, 17 say hold, and six say to sell. In our Motley Fool CAPS investor database, more than 584 of our 70,000 users have rated the stock, giving it a two-star rating overall.
  • Revenue. The average revenue estimate for Sprint Nextel is $10.2 billion this quarter, a slight 3% dip from last year.
  • Earnings. The average analyst is expecting $0.22 per share in earnings, significantly less than last year's $0.32.

What management says:
Management isn't saying a whole lot anymore, at least not ex-CEO Gary Forsee, who took one for the team and stepped down from his post earlier this month. The company just hasn't been able to come out of its funk after merger integration problems dragged it further and further behind leaders AT&T (NYSE: T  ) and Verizon Wireless, a joint venture of Verizon Communications (NYSE: VZ  ) and Vodafone (NYSE: VOD  ) .

With the announcement of Forsee's departure, the company also warned that this quarter will not be a happy one, including a net loss of 337,000 wireless subscribers. Obviously, the customer losses weren't part of the board of directors' idea of moving "the company forward in improving its performance and realizing corporate objectives," so a change in leadership was warranted.

What management does:
Sprint Nextel's metrics were showing signs of stabilization before it dropped the latest bomb, so it looks like the company will need a few more quarters to work the kinks out.

Metric

12/05

03/06

06/06

09/06

12/06

3/07

6/07

Net Subscriber
Additions*

2,021

1,338

704

233

742

568

373

Churn

2.3%

2.3%

2.4%

2.8%

2.7%

2.7%

2.5%

ARPU

$61.24

$60.07

$59.75

$58.64

$57.55

$56.48

$57.19

*In thousands. Source: Sprint Nextel.

One Fool says:
To help reverse the downward spiral, Sprint Nextel is hoping to more widely deploy a technology developed by Qualcomm (Nasdaq: QCOM  ) , called QChat, that mimics the successful walkie-talkie service that once helped prop up Nextel's industry-leading average revenue per user.

The company also indicated that its WiMAX plans with partner Clearwire (Nasdaq: CLWR  ) remain on track, though any benefits here will not be seen for years. And like handset maker Nokia (NYSE: NOK  ) , the company is also getting into the content game by launching a mobile TV service that includes exclusive sports, music, and entertainment video.

But it seems to this Fool that Sprint Nextel still has too many irons in the fire. Hopefully, a new outsider CEO will come in, clean out the cobwebs, and get down to the core services that the company needs to drive growth again.

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