Sprint Shares Jumped, Then Dropped: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of wireless No. 3 Sprint Nextel (NYS: S) were giving investors a roller-coaster ride today, rising as much as 13% before reversing course and falling as much as 22% from their high point to register a 12% loss.

So what: In outlining its plans for the future today, Sprint said that the rollout of its new Long-Term Evolution network is going well and will cover as many people as the WiMax coverage it currently offers from a partnership with Clearwire (NAS: CLWR) by the end of next year. By 2013, it will have even broader coverage (Clearwire shares are plunging on the news). In addition, the company made some bullish comments on its deal to add the iPhone to its phone mix, though executives wouldn't comment on the commitments the company reportedly made with Apple (NAS: AAPL) to get the iPhone.

Big network revamps like this don't come for free, though. The positive momentum that Sprint shares had in the morning evaporated like so much delicate morning dew as investors grew heated over the company's admission that it will need to raise new capital or draw on its line of credit to finance its build-out.

Now what:Earlier in the week I said that Sprint's move to get the iPhone -- assuming reports of its hefty commitment are true -- looked like a "wild pitch" to desperately try to keep pace with its competitors. My view hasn't changed since then. However, the company's push to roll out its fast new network is much more interesting and could help get the company back on track if it can give customers a really positive experience.

Value investors like Dodge & Cox and David Einhorn's Greenlight Capital have flocked to Sprint because although the company is unprofitable, it is still cash-flow positive. That's all well and good, but with nearly $19 billion in debt and a business that's having trouble keeping up with competition, it's still crucial that the company spend money wisely and find its footing.

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