Sprint – Stock Slides on Second Quarter Results

Implications: All stock holders need to calm down.  Of course things are going to get worse before they get better. It is the nature of restructuring – pain first, followed by healing, followed by growth. Sprint needs ot rid itself of non-core assets now to pay down debt.

Analysis: I am not trying to minimize shareholder concerns.  I am trying to provide a sense of reason.  Dan Hesse is restructuring a very large, complex, and mismanaged company.  One of the first things to expect when restructuring any company is that you will lose customers.

The important thing for equity investors, bond owners, and creditors to do is to examine Hesse’s actions as a whole.  Do not judge Hesse’s actions as discrete activities designed to raise the price of the stock.

I often say that Wall Street is mostly hype and almost no substance.  Stock prices go up on expectations without any proof of action.  If you look closely at Dan Hesse is doing, you will see that each of his actions are designed to turnaround the company.  If Wall Street was looking for a quick bump in the stock it would float around the rumor that Google wanted to buy Nextel.  With news (even false news) like that the stock would jump up for a few days, long enough for brokers to generate transaction fees.  However, there would be no truth to it.  Of course, I have no foreknowledge; at the time of this writing Google could be seeking to buy Nextel for all I know.  However, at this time I have not heard or read anything of the sort.

Please don’t read anything into my comments – I was just making an illustration.

Despite, what Hesse is saying, Nextel needs to go.  By selling Nextel, Sprint will generate an enormous amount of cash.  What Hesse needs to do is shift as many of the high paying Nextel customers onto the Sprint network before he jettisons the iDEN network.  Hesse also needs to pay down corporate debt as quickly as possible.

Investors, bond owners, and creditors need to be patient.  By the end of this year, Hesse should have put into action every critical step needed to right the company.  If Hesse has not implemented or put into place all of the critical steps, then everyone can go ballistic on him.