Share Price Performance
Relative outperformance over the last year and the last month suggest a leading position.
S-US’s share price performance of 79.2% over the last 12 months is above peer median of 23.7%. The 30-day trend in its share price performance of 13.8% is also above the peer median of 3.1% suggesting that this company is a leading performer relative to its peers.
Drivers of Valuation: Operations or Expectations?
Valuation (P/B) = Operating Advantage (ROE) * Growth Expectations (P/E)
Price/Book or P/B valuation is a function of the observed operating performance of the company as measured by ROE multiplied by the market’s current implied growth expectation as measured by the P/E. We define Valuation Premium as the difference between the Market Capitalization and Book Value of Equity, and as a proxy for the NPV of cash-flow associated to the Book Equity investment.
Based on the analysis of the relative contribution to the P/B valuation of “Operations ROE” vs. “Expectations P/E”, we quickly garner insight into peers comparative performance and the market’s assessment of their strategies – are they just “Harvesting” the current business pipeline or are investors betting on a strategic “Turnaround”?
The market expects S-US to maintain the median rates of return it generates currently.
S-US’s PE multiple is negative now so EBITDA ratios provide better peer comparisons. Growth expectations for S-US’s are around median in its peer group (Price to Ebitda multiple of 3.4 compared to peer median of 3.5). The market seems to expect S-US to maintain the peer median return (EBITDA return on equity of 43.5% compared to the peer median of 43.5%) it currently generates. The company’s current Price/Book of 1.8 is about median in its peer group.
S-US has relatively low net profit margins while its asset efficiency is relatively high.
S-US has maintained its Volume Driven profile from the recent year-end. Log-in
for detailed report.
S-US has achieved relatively better changes in earnings than in revenues.
Changes in the company’s revenues are in-line with its peers (annual revenue changed by 3.4%) but its earnings performance has been better — its annual earnings changed by 16.6% compared to the peer median of -5.7%, implying that it has better cost control relative to its peers. S-US currently converts every 1% of change in revenue into 4.8% of change in annual reported earnings.
Sustainability of Returns
S-US’s relative returns suggest that the company has operating challenges.
S-US’s return on assets is less than its peer median currently (-7.8% vs. peer median 1.3%). It has also had less than peer median returns on assets over the past five years (-11.4% vs. peer median 2.0%). This performance suggests that the company has persistent operating challenges relative to peers.
Drivers of Margin
Relatively low margins suggest a non-differentiated product portfolio and not much control on operating costs. S-US has maintained its Commodity/High Cost profile from the recent year-end.
The market seems to see the company as a long-term strategic bet.
While S-US’s revenues growth has been below the peer median in the last few years (-1.9% vs. 0.8% respectively for the past three years), the market still gives the stock an about peer median Price/EBITDA ratio of 3.4 (Note: We use Price/EBITDA instead of PE due to negative earnings). The market seems to see the company as a long-term strategic bet.
Capital Investment Strategy
S-US seems to be in maintenance mode.
S-US’s annualized rate of change in capital of -8.4% over the past three years is less than its peer median of -0.2%. This below median investment level has also generated a less than peer median return on capital of -8.0% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.
Leverage & Liquidity
S-US would seem to have a hard time raising additional debt. S-US has maintained its Limited Flexibility profile from the recent year-end.Log-infor detailed report.
Key Valuation Items
Detailed tables on Revenues & Margins, Key Assets (% of Revenues), Key Working Capital Items, Cash Management Indicators, Key Liquidity Items, Key Cash Flow Items (% of Revenues) are available on logging in.
Sprint Nextel Corp. provides a comprehensive range of wireless and wireline communications services that are designed to meet the needs of individual consumers, businesses, government subscribers and resellers. It provides 4G wireless broadband services. The company builds and operates next generation mobile broadband networks, which provide high-speed mobile Internet and residential access services, as well as residential voice services, in communities throughout the country. It operates through two reportable segments: Wireless and Wireline. The Wireless segment offers wireless services on a postpaid and prepaid payment basis to retail subscribers and also on a wholesale and affiliate basis, which includes the sale of wireless services which utilize the Sprint network but are sold under the wholesaler’s brand. The Wireline segment provides a broad suite of wireline voice and data communications services to other communications companies and targeted business and consumer subscribers. It also provides voice, data and IP communication services to Wireless segment and IP and other services to cable Multiple System Operators that resell local and long distance services and use back office systems and network assets in support of their telephone service provided over cable facilities primarily to residential end-user subscribers. Sprint Nextel was founded by Cleyson Brown in 1899 and is headquartered in Overland Park, KS.
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This article was originally written by abha.dawesar, and posted on CapitalCube.