Feb. 28 (Bloomberg) -- Sprint Nextel Corp., the third- largest U.S. mobile-phone service provider, said fourth-quarter profit increased 32 percent after acquisitions boosted revenue.

Net income rose to $261 million, or 9 cents a share, from $197 million, or 7 cents, a year earlier, the Reston, Virginia- based company said in a statement today. Sales advanced 6.7 percent to $10.4 billion, beating the $10.3 billion average of analyst estimates compiled by Bloomberg.

The purchase of affiliates including Nextel Partners Inc. last year helped Sprint make up for the 306,000 customers it lost to rivals such as AT&T Inc. in the period. Chief Executive Officer Gary Forsee reiterated today that subscriber growth will return in the second quarter as the company introduces trendier phones, new advertising and network improvements.

``This gives some folks hope of a recovery,'' said Pacific Crest Securities analyst Steve Clement in Portland, Oregon. He has a ``sector perform'' rating on the stock and doesn't own any. ``They need to concentrate on churn and customer retention and that is what they are doing.''

The shares rose the most in four months as the results fueled speculation that Sprint may be a takeover target. They advanced 85 cents, or 4.6 percent, to $19.30 at 4:04 p.m. in New York Stock Exchange trading after a drop in global stock markets led to a 5.5 percent decline yesterday.

Citigroup Inc. analyst Michael Rollins raised his rating on the stock to ``buy'' from ``hold'' today, saying Sprint remains a potential buyout candidate and is better positioned to restructure its operations and add subscribers.

`Work To Do'

The rate of customer losses, or churn, was 2.3 percent in the fourth quarter, compared with 2.1 percent a year earlier and 2.4 percent in the third quarter, Sprint said. The company targets a churn of less than 2 percent by the end of this year, Forsee said on a conference call with analysts today.

``We have much work to do,'' Forsee said. ``We are tracking with our plans in the first quarter.''

Sprint projected last month that 2007 sales would be as much as $42 billion, shy of the $42.1 billion average of 20 analyst estimates compiled by Bloomberg. The company, working to combine the purchase of Nextel Communications Inc., also said it would cut 5,000 jobs, or 7.7 percent of its workforce. The shares fell 11 percent the next day.

``They have to execute, which they haven't done for a while,'' said Walter Piecyk, an analyst at Pali Research in New York. Piecyk rates the stock ``sell'' and doesn't own the shares.

Text Messages

Acquisitions made last year helped offset a 4.6 percent drop in average monthly revenue per contract customer in the fourth quarter to $60. Data revenue from services such as text messaging and Web browsing jumped 66 percent.

Data revenue will continue to increase this year, and the slide in average revenue per user will moderate, Chief Financial Officer Paul Saleh said in an interview today.

``We will see the benefits of all the investments that we are making to fix the business starting to pay off,'' Saleh said.

Excluding costs tied to acquisitions, fourth-quarter profit was 29 cents a share, in line with estimates compiled by Bloomberg and 1 cent above the average in a Thomson Financial survey.

Sprint may be able to add contract subscribers in the second half, helped by a more effective marketing campaign, Citigroup's Rollins wrote in a note today. The company may become a takeover target should its restructuring efforts fail or if cable providers see the company as strategically attractive, he wrote.

Market leader AT&T and Verizon Wireless, owned by Verizon Communications Inc. and Vodafone Group Plc, have exploited Sprint's difficulties with more popular phones and ad campaigns touting network quality. Verizon added 2.3 million wireless customers in the fourth quarter, while AT&T added 2.4 million.

To contact the reporter on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net

Last Updated: February 28, 2007 16:13 EST