Bernstein Research analyst Craig Moffett this morning reiterated his bearish stance on Sprint (S), defending his Underperform rating and $2.50 target price, well below the current level. His position is that the fact that the company does not consolidate the results of its 56.4%-owned stake in Clearwire (CLWR) distorts the company’s financial position – and makes the stock look more attractive than it really is.
“Sprint and Clearwire are strategically intertwined,” he writes in a research note. “Clearwire is dependent on Sprint for continued funding, while Sprint’s future competitiveness is, at least in part, dependent on Clearwire’s 4G network.” Ergo, he contends the best way to look at Sprint is on a proportionate consolidated basis, a method he contends “is far more reflective of economic reality than are Sprint’s stand-alone results.”
If you take that approach, he notes, Sprint’s sales would be marginally higher, but cap ex would be significantly higher, and EBITDA and future free cash flow would be meaningfully lower. On that basis, Sprint’s EV/EBITDA multiple would jump t0 6.5x from 4.8x, he notes, while Sprint’s free cash flow yield would drop to the 6%-7% range, from 15%. On that adjusted basis, he notes, Sprint shares trade at a considerable premium to peers.
Moffett writes that Sprint’s “relatively lofty valuation” gives rise to “the rather bizarrely anomalous inverse correlation that currently exists in the U.S. wireless market,” with weaker companies getting much more highly valued than weaker ones. “This rather extraordinary circumstance seems to us, to put it mildly, unsustainable.”
Moffett thinks investors would be better off owning pre-paid wireless companies Leap Wireless (LEAP) and MetroPCS (PCS).
Sprint today is down 16 cents, or 3.7%, to $4.34.
No comments:
Post a Comment