Sprint Gets A Wakeup Call
On Tuesday morning, Sprint FON Group announced it had earned 36 cents a share in the first quarter, a penny below First Call's consensus estimate.
As expected, pricing pressure on Sprint's long-distance business was a major factor, which was something we mentioned late last week in a generally favorable story about the company's prospects (see Weekday Trader, "Sprint Is A Good Value If Investors Hang Up On Long Distance," April 12).
Revenues in the company's Global Markets division, which includes long distance, fell 2%. No surprise there.
Other parts of the business came under pressure, however. Following the first-quarter earnings announcement, analyst Daniel P. Reingold of Credit Suisse First Boston, reiterating his Buy recommendation, nonetheless slashed his 2001 profit estimate to $1.30 per share, down from $1.57, and cut his price target to 29, from 34. (Late Tuesday afternoon, the stock traded at 22.16, down 1.25 on the day.)
Among Reingold's concerns: slowing revenue growth in the Internet and data businesses, crucial parts of FON's initiative to become less reliant on long distance. For instance, he now sees Internet revenues growing 26% this year, less than half his earlier estimate of 55% growth.
No doubt, the slowing economy is taking its toll: Even FON's vaunted local telephone business is under pressure, company officials said. Reingold is sticking to his earlier prediction that the local telecom business can grow revenues 4.5% this year -- thanks in no small part to bundling various services like caller ID and call-waiting.
Despite the bad news, Sprint stock remains very cheap. Reingold estimates that the local telephone business is worth about $20 per share. Which means that with the stock at 21 and change, nearly all of Sprint's non-local assets are free.
It just may take more time -- and a better economy -- for investors to notice.
--Lawrence Strauss |
