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Reasons to Buy Sprint Nextel Corporation (S)

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Sprint Nextel Corporation (NYSE:S) operates in the US telecom sector and offers a broad range of wireless and wireline communications services. The company attracted more than 55 million customers at the end of the first quarter of 2013. Over the past three years, Sprint reported net losses. The question remains, will the company claw back some of its poor performance? Let’s find out.

Stock-price drivers

Sprint Nextel CorporationSprint Nextel Corporation (NYSE:S) demonstrated strong growth in its subscriber base after the launch of its 4G LTE wireless network. Its subscriber base reached the highest level of 53.9 million, of which 16 million are prepaid subscribers. The new network is operating in only 88 cities, which means there is plenty of room for expansion.

The expansion into the 4G network and the introduction of unlimited data plans to customers on some of the best phones was the result of this growth in subscriber base. It is fairly reasonable to anticipate future growth in the company’s subscriber base as the company continues to introduce new phones, including the latest Research In Motion Ltd (NASDAQ:BBRY) BlackBerry phones. Besides, the company is striving to create a variety of other data plans, which will contribute to the growth in the subscriber base.

Last May, Sprint Nextel Corporation (NYSE:S) announced an end to the service on its iDEN (2G) Nextel National Network and the introduction of the CDMA (3G) cell services with an aim to improve coverage and data speeds. Besides, this technology is also considered cheap. Therefore, I believe this enhanced coverage and data speed at a competitive cost will increase the company’s profit margins and also act to increase the company’s market share. The transition from iDEN to CDMA will add economic value for Sprint Nextel Corporation (NYSE:S) from reduced roaming costs, more efficient use of capital, and energy-cost savings.

The company turned profitable after many quarters. The operating income for the first quarter of 2013 came in at $29 million, compared to an operating loss of $255 million for the first quarter of 2012. The improvement in the most recent results was largely due to reductions in accelerated depreciation. Also, an increase in Sprint Nextel Corporation (NYSE:S)’s platform-service revenue with lower cost of service was a major contributor. I believe that the company can retain some of the profits and expand further.

Competitors

Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) also provide telecommunication and wireless services. Verizon Communications Inc. (NYSE:VZ)’s revenue for the full-year 2012 increased 4.4% due to an increase in the post-paid subscribers. Its stock is currently trading at $52.89. Verizon demonstrated a strong increase of its subscribers after the launch of its 4G LTE wireless network in 2010.

On the other hand, AT&T Inc. (NYSE:T)’s full-year 2012 revenue grew 2.4%, while its EPS surged 8.5% over the prior year. The company’s shares are currently trading at $37. AT&T increased its quarterly dividend for the 29th consecutive year and paid out more than $10 billion in regular quarterly dividends.

Looking into the future

US mobile subscribers reached 330 million by early 2013. Although growth has slowed due to high penetration levels, mobile data usage remains strong while data revenue continues to grow gradually. Some 86% of quarterly Sprint-platform post-paid handset sales were smartphones. Sprint continued to enhance its smartphone portfolio and is planning to offer Samsung Galaxy S4 in next four weeks as well as BlackBerry Q10 and two Windows 8 phones later this year.

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