I hope you're wearing your contrarian hat today, dear reader, because the stock I'm about to make the bull case for is far from the prettiest girl at the dance.

I'm talking about Sprint Nextel (NYSE:S), the underachieving third wheel of the U.S. wireless market. Sprint's shares have been drubbed over the past year, primarily by a mix of continued poor execution and fierce competition.

Even as the value guy I typically am, I'll admit that Sprint is quite a contrarian play. On the bright side, though, Sprint's lackluster operating performance over the past several years has left room for a quiet turnaround that is now under way. Couple that with its bargain-basement valuation, and you've got an intriguing opportunity for the patient, contrarian investor.

The turnaround
Larger, more efficient rivals AT&T (NYSE:T) and Verizon Wireless -- a joint venture between Verizon Communications (NYSE:VZ) and Vodafone (NYSE:VOD) -- have steadily distanced themselves from the company that emerged from the 2005 marriage of Sprint and Nextel.

Sprint is working to prevent the gap from widening any further by addressing its key weaknesses. Without getting too far into the weeds, I'll say only that Sprint essentially runs two networks: its pre-merger Sprint/CDMA network and the iDEN network it inherited from Nextel. An obvious problem with such a setup is the need to continually invest in two separate networks. Sprint is seeking to solve this problem by migrating its valuable Nextel/iDEN subscriber base onto its Sprint/CDMA network, by rolling out a new push-to-talk technology on its CDMA network in early 2008. Such a move will reduce the need to invest in its iDEN network and thus save substantial cash flow down the road.

Also contributing to Sprint's malaise has been its notoriously poor customer experience, from high dropped-call rates to poor customer service. In response, the company is working on decreasing its dropped-call frequency (it just reported record performance in this area on both of its networks), adding customer-service reps, and integrating its Sprint and Nextel billing systems. These initiatives should help to curb the company's accelerating churn rate -- though that hasn't happened yet. Yes, it's troubling that the company has taken so long to get the post-merger back-office operations straightened out, but I do give Sprint some credit for finally getting on track.

New blood
Another key step in the turnaround? The booting of CEO Gary Forsee, under whose stewardship Sprint had faltered. His replacement, Dan Hesse, comes to Sprint from Embarq (NYSE:EQ), a fixed-line telecom that was spun off from Sprint in 2006. The former Embarq CEO has decades of industry experience and was once the head of AT&T Wireless. He's not a sexy or splashy choice, but he's a safe one who should help Sprint get out of the blocks.

Tossing Forsee hasn't been Sprint's only recent shareholder-friendly move. The board also recently rejected overtures from South Korea's SK Telecom (NYSE:SKM), which was cleverly looking to get a toehold in the U.S. market by buying a block of distressed Sprint shares.

Finally, let's keep this all in perspective. We're talking about a company that still serves around 54 million customers and sports an impressive average revenue per user, not a USA Mobility (NASDAQ:USMO)-esque wireless player that could face extinction in a few years.

The valuation
Sprint is cheap from a historical perspective and on a relative basis to its peers -- with good reason, of course, given the company's post-merger indigestion and its lackluster operating performance.



EBITDA Margin*




Verizon Communications



Sprint Nextel



Source: Capital IQ, a division of Standard & Poor's.
*EBITDA margin reflects trailing-12-month data.

Still, should you see Sprint's turnaround gain traction, not only would you observe rising profits and cash flows, but you'd see multiple expansion to boot. Such a one-two punch would result in significant market outperformance in the coming years.

But enough from me. Read on to Dave Mock's bear argument and beyond, and then cast your vote for the duel's winner!

Sprint is a Motley Fool Inside Value recommendation. To find the IV team's estimate of fair value on this and dozens of other recommendations, give the service a spin with a 30-day free trial.

Fool Telecom editor Joe Magyer does not own shares of any companies mentioned in this article. SK Telecom is a Global Gains recommendation. Unlike Sprint, The Motley Fool's disclosure policy is not a turnaround story.