Sprint iPhone 5 Release Date: Stock Review -- Is The Stock Headed to $6?

ANALYSIS

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Sprint iPhone 5
Sprint has confirmed an unlimited data plan for its new iPhone 4S, possibly helping to lure customers back to signing contracts for the iPhone.

Sprint (S), the cell phone service provider company that gets no respect, may finally start to, especially if the company adds Apple's iPhone 5 this fall, in a much speculated-about Oct. 7 possible move.

And, my analysis argues that if Sprint gets the iPhone 5, it will be not only a game-change, but also be an image-enhancer, and morale-booster for Sprint: all three are critical for the company, moving forward.

Sprint: High-Risk Stock, With/Without iPhone 5

However, keep in mind that even with the iPhone 5 (and certainly without the iPhone 5), Sprint is a high-risk stock not suitable for low-risk or moderate-risk investors.

Don't consider Sprint if you can't tolerate a more than 50-70% loss or seeing your entire investment wiped out -- it could happen.

First, undoubtedly, the iPhone 5 would lead to subscriber growth, with less attrition. Sprint boasted roughly 52.1 million wireless subscribers as of the second quarter.

Second, most likely Sprint's revenue, which totaled $32.3 billion in 2009 and $32.6 billion in 2010, with the iPhone 5 would rise more than the 2.9 percent to 3.2 percent revenue growth many analysts are projecting for the company in 2011. The two percent revenue growth for 2012 also would look a tad light.

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for S are a loss of 82 cents and a loss 67 cents. That FY2011 EPS loss estimate looks about 30-35 percent high, and the FY2012 EPS loss estimate looks about 60-65 percent high, according to my analysis. Each loss estimate of mine assumes Sprint secures the iPhone 5.

iPhone 5: Cache Factor

Third, The iPhone 5 will further shore-up Sprint's brand image. Hurt over the previous decade by a cell phone network that underperformed, to say the least, that reputation has stuck to Sprint, when, in reality Sprint's network has been improving over the past three years. So has its customer service, and its decent line of smartphones and related devices will only be enhanced if the iPhone 5 is successfully recruited -- something that would continue Sprint's operational momentum. The iPhone will also help company morale: employees will finally know they are working for a company that's not merely surviving, or looking to be bought, but a company that could strengthen to compete with cell phone service provider giants AT&T (T) and Verizon (VZ).

Finally, there's the cachet factor. Even if Sprint secures the iPhone 5, it can't tell institutional investors -- the big guns who help to determine share price values -- that it's going to match the operational and earnings performance of AT&T and Verizon in a year -- but it can say the company is getting to the point where it's a contender, again and that may encourage some investors to get ahead of the game and start loading up on shares.

Technically, Sprint's shares, which closed Friday at $3.53, formed a bear hug this spring at $6, dropping to about $3 in August. Sprint remains below the key, 50-day moving average and the 200-day moving average, but the view from here argues that a bottom is in place at/near $3. Sprint's shares should trade above $5 by the end of 2011, and above $6 by the end of 2012.

Stock Category: Sprint is not a stock for anyone seeking a guaranteed capital gain in the year ahead. Sprint's shares could pop 50 percent higher, but they could just as easily meander or plummet 30 percent,or even more. Consider Sprint only if you have the patience to wait 2 years to realize a capital gain. There's also a 50 percent chance you'll lose your entire investment with S over a 10-year period.

2011 Outlook: I view as Sprint a long-term play, but if you're looking to sell S within the year, it's probably best to take your profits after it rises to $4.50-4.75 fails to rise above $5.

Stock Analysis: Sprint Nextel Corporation is a high-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in S now; then buy another 25% in two months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of my S position before January 2012 and I'd put a sell/stop loss at: $1.25.

 

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Disclosure: L.C. Jacobs of New York, N.Y. reviews stocks on a quarterly, semi-annual, and annual basis.

L.C. Jacobs has no positions in stocks reviewed, but does own federal, municipal, and corporate bonds.

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