Sprint Corporation (S): Sprinting To $10?

Nomura Securities says Sprint Corporation (S) is a $10 stock. Analyst Adam Ilkowitz upgraded the wireless communications company to a "Buy" from a "Neutral" rating.

In his research note, Ilkowitz wrote, "The heart of our call is that Sprint will likely double Adj. EBITDA owing to modest revenue growth and significant cost reductions. We believe operating cost reductions should be seen in two buckets: lower project spending (iDEN, Network Vision, roaming) and flat ongoing expenses. Our estimates are ahead of consensus, though they are more conservative than Sprint's publicly-disclosed forecasts in the proxy filings. We do not believe another round of Wireless M&A is likely given the already concentrated nature of the industry, and our forecasts and target price do not include further consolidation."

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Sprint provides wireless and wireline communications services to consumers, businesses, and government users in the United States, Puerto Rico, and the U.S. Virgin Islands. Sprint is an independent publicly traded company in the U.S.; however, Japan's SoftBank controls 78% of its shares.

SoftBank's CEO Masayoshi Son promises to make S a viable competitor to AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ).

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Now, trying to get to $10 per share using earnings-per-share is an impossible task considering Sprint has a history of losing money and is expected to do so in the year ahead. In fact, Nomura believes Sprint will lose $0.40 per share in 2014.

So, we'll turn to price-to-sales (P/S) to see if $10 is possible based on Sprint's past P/S ratio. Plus, we compare Sprint to VZ and T.

Wall Street expects Sprint to generate revenue of $35.45 billion in 2014. Since being listed in August, Sprint's P/S ratio range is 0.47 to 0.78 with an average of 0.59. To trade at $10 will require S to trade at 1.1! times 2014's consensus revenue estimate.

Ten bucks could be a difficult task considering VZ's average P/S ratio in the last half-decade was 0.95 and maxed out at 1.32. AT&T is rewarded with a higher multiple with a five-year average P/S of 1.40 and a peak of 1.76.

It's probably going to take a catalyst to help spur growth for $10 or more to become reality. The company expects to unveil the industry's "fastest wireless network speeds to approximately 100 of America's largest cities" covering "100 million Americans" by the end of 2014.

If the 1 Gigabit per second (Gbps) over-the-air network moves the sales needle, then iStock can see Sprint's multiples expanding and a potential return to profitability exciting investors.

Overall: SoftBank's commitment to Sprint Corporation (S) should begin to payoff sometime in 2014, probably around the time S rolls out its new network. While $10 is a possibility, investors are likely to wait for sales acceleration before valuing Sprint on par with AT&T or Verizon.