Raymond James smiles on troubled Sprint Nextel

While Sprint Nextel Corp. has faced downgrades in recent weeks from various investment companies, the carrier still is feeling the love from investment-banking firm Raymond James.
Analyst Ric Prentiss rated the company’s stock as a “strong buy” in a recent research note based on expectations that the company’s CDMA operations will continue healthy growth. Prentiss also noted that, as Cingular Wireless L.L.C. has proven in recent quarters, a major merger can eventually prove profitable. Cingular merged with AT&T Wireless Services Inc. in 2004, and Sprint Corp. combined with Nextel Communications Inc. in 2005.
“We are confident that the bulk of Sprint’s problems truly seem to lie on the iDEN/Nextel side,” Prentiss and research associate Jeff Campbell concluded.
Over the past few weeks four investment-banking firms have downgraded their opinion on Sprint Nextel’s stock.Prentiss also noted that Sprint Nextel’s remaining affiliates are continuing to perform well; iPCS reported this week that it bumped up its net customer adds by 43 percent from the fourth quarter of 2005 and trimmed its churn rate from 2.6 percent at the end of 2005 to 2.4 percent in the fourth quarter of 2006.
However, Prentiss also noted a number of potential risks for the carrier. Specifically, he cited Sprint Nextel’s spectrum-rebanding effort, its capital expenditures for deploying WiMAX, and its difficulty in migrating iDEN customers to CDMA.
Prentiss said Sprint Nextel needs to realize benefits from the merger with Nextel in order to cash in on its potential.
“We feel that a significant deviation in the timing of realizing synergies would be a leading reason for us to change our investment thesis, since a key driver in our model relies on the company decreasing its cost of providing service as a percentage of revenues,” the note concluded.
According to the research note, one or both of the authors do own Sprint Nextel common stock.