Inside Wall Street
IS SPRINT ABOUT TO BE CHASED BY A SUITOR?
Sprint hasn't exactly won any popularity contests on the Street lately--despite Candice Bergen's winsome television commercials. "Most analysts are still pretty negative on Sprint because its earnings have disappointed in the past two years," says Oppenheimer analyst Mike Elling.
So when Sprint came out on Apr. 15 with a better-than-expected first-quarter profit of 45 cents a share vs. the 36 cents consensus estimate, the stock jumped from 21 1/2 a share to 23 3/8. Sprint--its name was changed from United Telecommunications in February--earned 38 cents in 1991's first quarter.
Elling believes future surprises will also be on the upside. He expects other analysts who have been wary to start revising upward their 1992 estimates from the current range of $1.80 to $1.85. He's sticking to his $1.95 estimate. In sum, Elling contends, the company is the cheapest stock in the telecommunications universe.
`WELCOME OR NOT.' Earnings aren't the only thing prompting some big pros to snap up Sprint shares at current prices. "There's creeping speculation," says one investor, "that a large company is eyeing Sprint's long-distance telephone operations and may bid for them--welcome or not." The company's U.S. Sprint service is the nation's third-largest long-distance carrier, serving some 6 million customers worldwide. Elling thinks a buyer could come from any of the following groups: a giant financial company, a major computer/telecommunications or cable TV company, or a big foreign conglomerate. A Sprint spokeswoman said the company doesn't comment on market rumors.
A low-ball estimate of its assets puts the value of U.S. Sprint long-distance operations at about $21 a share, net of debt, according to one pro who tracks the company closely. That's without any buyout premium. Sprint's local telephone operations, serving more than 4 million customers, are worth an additional $20 a share, he adds. The company's other units, including telephone-directory publishing and supply distribution, are worth $5, he figures.
Speculation about Sprint as a takeover bet reached its height last year, before the company bought back GTE's 19.9% stake in Sprint in February. That nipped speculation for a while. Elling says he isn't aware of any offers. And he doubts that Sprint's board will be an easy fight--if a suitor proves hostile.
Even without any kind of buyout deal, Elling argues that Sprint, with its improved balance sheet and estimated 1992 sales of $9 billion, is worth $55 a share, based on the value that the market assigns to MCI Communications and AT&T. He says that Sprint, selling at around 4 times cash flow and 11 times his 1992 estimate ef $1.95 a share, "represents the best value in the business and has the most upside potential as 1992 progresses."GENE G. MARCIAL