After an orgy of Sprint-Nextel (S) downgrades yesterday — six in all — today comes a kind word from FBR Capital’s David Dixon, who actually swapped AT&T (T) out of the firm’s “Top Pick” spot in favor of Sprint.
Dixon has an Outperform rating on Sprint and a $6 price target.
Dixon writes that the concerns about a “funding gap” coming out of last Friday’s investor presentation are a bit too much. Sprint had said that it might need to tap public markets in future, sending its shares crashing and leading to the downgrades yesterday.
He estimates there is $4.2 billion of capital needs not covered, based on Sprint’s need to build out its 4G network with so-called LTE infrastructure, while enduring a dilution of its profit margin as it subsidizes Apple’s (AAPL) iPhone for the first time.
Dixon thinks the $4.2 billion need can be met by refinancing that much in debt maturities, pushing them to 2013, or by using a $6 billion senior-secured debt capacity. “This is familiar territory for incoming CFO Joe Euteneuer, who successfully raised capital under tough market conditions at Qwest in 2008�09,” writes Dixon.
Dixon thinks Sprint is doing the right thing in going for a nationwide LTE network, rather than sticking with partner Clearwire (CLWR) for the majority of its 4G service:
Decoupling the company�s 4G strategic path from Clearwire will prove to be no easy task, as this is the cause of much investor consternation evidenced by a heated Q&A session at the investor day. However, we believe that the company is on the right strategic path with a well-funded business plan and we believe execution risk is mitigated. While the risk of a Clearwire bankruptcy in the short term is mitigated in our view, it is possible but we expect Sprint would likely bid for portions of Clearwire spectrum in any restructuring. Furthermore, we would expect any other potential buyer (including other buyers of alternative potentially attractive spectrum bands) to be subject to tight build-out conditions by the FCC, which should help drive a spectrum hosting partnership with Sprint on the Network Vision platform.
The iPhone subsidy brings positives and negatives.
Dixon raised his 2011 revenue estimate to $33.4 billion from $33.3 billion, to reflect the iPhone’s contribution, and raised his Q4 net additions estimate to a positive 260,000 from a prior estimate for a negative 190,000, and cut his churn estimate this quarter from 1.8% to 1.7%. He also raised his 2012 revenue estimate to $35 billion from $34.2 billion.
However, Dixon also cut his profit estimates, with this year’s Ebitda going to $4.6 billion from $5.2 billion, and cut his 2012 Ebitda estimate to $4.3 billion from $5 billion. That will lead to negative free cash flow of $183 million this year, versus a prior $786 million positive cash flow, and negative $1.8 billion next year, way down from negative $406 million expected previously.
The iPhone should start to have a positive impact on profit in 2014, he thinks.
Sprint shares this morning are down 3 cents, or 1.4%, at $2.19.
No comments:
Post a Comment