Research Report From Pali Downgrades Sprint Nextel (S) To Neutral From Buy

The downgrade is because analysts Walter Piecyk & Joseph Galone of Pali Capital do not think the pace of improvements in subscriber losses is enough to grow EBITDA. According to the report from Pali Capital “Sprint’s (NYSE: S) stock is not expensive at 5.1x our 2010 EBITDA estimate or a free cash flow yield of 15% but with EBITDA in perpetual decline and capital spending at a low, a valuation call is difficult to defend.”

Sprint has made steady progress in improving post-paid subscriber losses, including a strong start to Q4, but the rate of the change or new cost cuts is not fast enough to end EBITDA’s perpetual decline. While pre-paid net adds might offset the losses or even top post-paid losses in Q4, the total customer base is expected to decline by 700,000 in 2010.