Sprint Risk Seems Over - Analyst Blog

The latest wireless industry rumors about Sprint Nextel's (S) imminent danger, with Clearwire Corp. (CLWR) running a risk of defaulting its loan agreements, seems to be over as Clearwire plans to offer $175 million in short-term notes due in 2015 and another $1 billion in debt due in 2017 and 2040.

Sprint Nextel shares rose the highest for the first time since July when Clearwire announced its plans to raise about $1.2 billion in new debt to finance further expansion of Sprint's wireless broadband network. Sprint Nextel owns a hefty 54% stake in Clearwire and offers speedy data services to customers via 4G WiMax (a wireless broadband technology) network in collaboration with the latter.

A month ago, Clearwire raised its doubts on its ability to accumulate funds or operate as a “going concern” due to nagging losses, raising concerns about Sprint's financial position. After years of struggle, Sprint has narrowed its subscriber losses by using the Clearwire network.The 4G WiMax deployment offers a major prospect in the wireless market that might boost Sprint's revenues.

During the third quarter, Sprint gained approximately 644,000 subscribers, representing 364,000 retail subscribers and 280,000 wholesale and affiliate subscribers in total. This was reportedly the best wireless subscriber growth since 2006. Sprint's adjusted net loss per share of 18 cents surpassed the Zacks Consensus Estimate by 10 cents. Revenue increased for the first time in three years and was also above the Zacks Consensus Estimate.

Currently, Sprint extends its 4G network in 68 U.S. markets via the Clearwire network. This reach keeps the company well ahead of its rivals AT&T Inc. (T) and Verizon Communications Inc. (VZ). AT&T plans to roll out its 4G services in 2011, and Verizon now has initiated the launch of its 4G services, which are expected to be available in 38 markets.

Although Sprint's 4G deployment is dependent on Clearwire, we believe the former is well positioned to leverage the growing wireless market in the U.S. with its rich portfolio of popular smartphone offerings and more advanced devices in the pipeline. Consequently, we are currently reiterating our long-term Neutral rating on Sprint supported by its Zacks #3 (Hold) Rank.

 
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