Sprint Loses Less... Back in the Barrel (S, AAPL, T, VZ, VOD, CLWR, PCS, LEAP)

When Sprint Nextel Corp. (NYSE: S) announced earlier this month that it would bet the company on its sales of the iPhone from Apple Inc. (NASDAQ: AAPL), investors pounded the stock down to a 52-week low of $2.10. Following today’s third-quarter earnings report, that number could be in danger, as the shares are down more than 7% in the first half-hour of trading. Interestingly, Sprint’s numbers weren’t so bad.

The number three wireless carrier in the US, behind AT&T (NYSE: T) and Verizon Wireless, a joint venture of Verizon Communications Inc. (NYSE: VZ) and Vodafone plc (NASDAQ: VOD) reported an EPS loss of -$0.10, less than half the consensus estimate of -$0.22. The company also came close on the revenue estimate of $8.38 billion, posting revenue of $8.33 billion.

A particular beneficiary of Sprint’s report is Clearwire Corp. (NASDAQ: CLWR). Sprint has signed a non-binding agreement to get Clearwire’s 4G/LTE network rolled out to customers. Clearwire’s shares have jumped more than 25% this morning on the announcement. Competing low-cost carriers MetroPCS Communications, Inc. (NYSE: PCS) and Leap Wireless International Inc. (NASDAQ: LEAP) appear to be getting some halo effect from Sprint’s report as well.

Sprint added nearly 1.3 million subscribers during the quarter, its best performance in five years. Average revenue per user (ARPU) rose by $3 year-over-year — from $55 to $58 — and the company’s subscriber base is up 23%. The company said that its launch of the iPhone on October 14th beat expectations and that Sprint expects its iPhone customers to be among its most profitable. The company did not provide sales figures for the iPhone, and no iPhone sales were included in the quarterly report.

What’s causing investors to run away from Sprint shares this morning is the company’s statement that it needs to raise as much as $7 billion to pay its bill for the iPhones and to upgrade its network (that’s where Clearwire comes in). All three credit rating agencies lowered their ratings on Sprint’s credit following the iPhone announcement. The company’s long-term debt now stands at nearly $20 billion and its cash and equivalents are reported at $4 billion.

Adding another $7 billion to its debt, if it’s even possible, will be very expensive. Investors must only see a continuation of the company’s record of 16 consecutive quarters of losses. If the proposed merger of AT&T and T-Mobile is approved, Sprint could be in the unenviable position of being the highest priced of the low-price carriers, with no realistic hope of getting out from under its pile of debt. Doubling down, as the company is doing with its iPhone play, may be the last desperate gamble Sprint makes.

Investing in and speculating in the price of Sprint’s stock sure looks and feels a lot like the punchline to a bad (and unnamed) joke… “No, it’s your turn to be in the barrel today!”  Yes, it really is that bad. 

Sprint shares are down more than -9%, at $2.46, in a 52-week range of $2.10-$5.35. Clearwire’s stock is up nearly 23%, at $2.01, in a 52-week range of $1.24-$7.40. MetroPCS shares are up more than 2.3%, at $9.31, in a 52-week range of $7.75-$18.79.

Paul Ausick