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Why Bother Investing in Sprint Corp Stock Right Now?

By the time you read this, Sprint Corporation (NYSE:S) will have reported earnings. Frankly, I’m not sure it matters. While competitors AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) have had the foresight to become content and distribution plays, and T-Mobile US Inc. (NYSE:TMUS) has a great growth strategy, S stock is cratering because it remains a commodity in a heavily commoditized business.

Promotions, Promotions, Promotions!

Sure, there is some good news. Sprint is modernizing its network. Uh, that may be the only good news. While the second quarter saw S stock benefit from the highest net retail phone additions in eight quarters, it is heavily discounting its products and loading on the promotions.

That’s never a good thing. And throwing in free access to Hulu is also kind of sad.

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The problem with these promotions is they result in big losses and burn cash so fast that one wonders how S stock is even still around. While revenue in fiscal year 2017 increased about 3.5%, S stock loaded up on more debt. Thus, its $1.72 billion in EBITDA was wiped out — and more — by $2.5 billion in interest expense. Over the trailing twelve months, EBITDA was $2.5 billion, but interest expense wiped that out too.

The cash flow situation had been improving, going from negative free cash flow of $3.55 billion in FY14 to negative $3 billion in FY15, and to positive $300 million in FY16. Alas, the TTM has seen negative free cash flow of $125 million.

Fortunately, S stock has $6.4 billion in cash and investments, and SoftBank (OTCPK:SFTBY) won’t let it fail. I just wonder how that $34 billion in debt is going to get paid down.

What troubles me the most about the promotions is that they keep changing. They have to because the competitors have so many permutations in their various plans. Various promos were permanent, but some expired. Some offered tons of data and others offered less. Pricing was all over the place. Some promos were only for new customers.

Augh!

When comparing phone plans becomes like comparing mattresses, I tune out. I don’t have the time to try and figure out all the different possibilities and just go elsewhere. Maybe that’s why TMUS and VZ are showing strong additions.

Sprint Has Some Technical Advantages, but Who Cares?

So what about 5G? We’re not there yet, but Sprint may be the first to make it real. Heck, we are still building out 4G and that system is nowhere near maturity. Plus the special frequencies needed for 5G aren’t even supported by smartphones yet. However, S stock may benefit because it has the most mid-band 5G spectrum of anyone. It also has a lot of other technical, and boring, legs up on the other carriers.

Bottom Line on S Stock

What this means to me, as an investor, is very little. It’s way down the road.

Sure, Softbank will keep S stock afloat so there will always be a floor to S stock. I think if you play S stock, you do it as a speculative buy. It’s 5-year low is about $3. I would just wait to see if it gets back down there again.

It’s already slipped from $9 to $5.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

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