Analysts and experts continue to weigh in on Sprint following their Q3 earnings call. Nearly all expound on the challenges Sprint is facing in the years ahead.  The conclusion: Now is not the time for them to attempt a merger with T-Mobile.  Sprint needs to focus on itself.  The company has plenty of financial, technological and operational challenges on its plate as it is.

Morgan Stanley: Significant challenges for Sprint

“This [Sprint’s Q3 earnings call] reinforces our view that Sprint faces significant challenges.”

“We see significant risks with Sprint’s current market/financial position and strategic direction.  We re-main cautious on the stock; it will likely be several quarters before investors become comfortable with Sprint’s ability to deliver on the promise of margin enhancement in 2014.  We note that Moody’s / Fitch recently downgraded the company’s credit rating.” [Morgan Stanley, 10/27]

Citibank: Sprint’s recovery comes with financial risk

“Sprint’s prospects for a recovery in the share price can be broken down into three stages, comprised of: 1) Improving On-Hand Liquidity; 2) Showing Share & Core-Margin Sustainability; and 3) Increasing Network Visibility. We recognize each of these steps faces varying degrees of execution and financial risk, given the new ground Sprint is breaking by emerging as the third competitor to sell the iPhone within the U.S. and its strategy to simultaneously deploy and transition its customer base to a new national mobile network within a rapid 3-year period.”

“Sprint’s Network Vision strategy will incur a higher cash burn in 2012 and 2013 than we had previously expected, based on the updated guidance, but also offers the prospect of larger annual benefits to cash flow over time.”

“Meanwhile, the Network Vision strategy and associated network migration is highly complex and requires the company and its vendors to execute at a very high level, while moving very quickly with the deployment.”  [Citibank, 10/27]

Morningstar: Sprint’s margin improvements have been erratic

“The risks that Sprint Nextel faces over the next two years have increased markedly on the decision to accelerate the Network Vision build out and the ambiguity around the terms of the firm’s agreement to sell Apple’s iPhone. We are downgrading our rating on the firm to B+ from BB+ as a result. The hard-won liquidity that Sprint enjoys–it is currently sitting on $4.3 billion in cash and securities–will likely be consumed over the next year to meet 2012 debt maturities and fund a sizable cash flow deficit. The size of Sprint’s financing need is tough to gauge with accuracy, but it is certainly larger, and will come sooner, than we had previously expected. If the firm’s commitment to the iPhone is as large as some have speculated, we believe it will need to raise around $2 billion by the end of 2012 and about $4 billion in total to see Network Vision through.”

“Sprint Nextel has struggled mightily since 2007, losing millions of its most valuable customers. Revenue and margins have contracted sharply as a result. Management took quick action to shore up liquidity and cut costs to keep cash flow in the black. While Sprint has repaid debt, profitability has eroded to the point that its net debt/EBITDA ratio hasn’t changed much over the past three years, hovering at around 2.7 times currently. The firm has been making solid progress recently, stabilizing the customer base and growing revenue, but margin improvements have been erratic. We believe Network Vision puts the firm on a firm path to sustainably improve margins, but the full benefit of this project won’t be felt until 2014 and beyond. A lot can change in the wireless industry between now and then, and Sprint may be forced to respond to new competitive threats or capital needs before it has a chance to fully turn its fortunes around.” [Morningstar, 10/26]