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Omega Advisors starts new positions in 3Q 2013

Omega Advisors starts new positions in 3Q 2013 (Part 1 of 7)

Why did Omega Advisors buy a position in Sprint Corporation?

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Omega Advisors Inc. is a New York–based investment advisory firm founded in 1991 by Leon G. Cooperman. Omega has approximately $10 billion under management (as of November 30, 2013).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Omega Advisors started new positions in Sprint Corp (S), Freeport-McMoRan Copper (FCX),  HCA Holdings Inc. (HCA), and Realogy Holdings Corp. (RLGY) and it sold Occidental Petroleum (OXY), Wells Fargo & Company (WFC), and Crocs Inc. (CROX).

Why buy Sprint Corp (S)?

Omega bought a 3.32% position in Sprint Corp. in 3Q 2013.

The consolidation trend in the U.S. wireless space is far from over, as Sprint is reported to be preparing to bid for its rival, T-Mobile. A merger would create a large player that would compete against the two largest mobile operators, Verizon (VZ) and AT&T (T). However, regulatory concerns might impact the deal, as AT&T’s $39 billion deal to acquire competitor T-Mobile in 2011 was shot down by U.S. antitrust regulators. Softbank Corp. owns a controlling stake in Sprint, while Deutsche Telekom AG owns about 67% of T-Mobile U.S.

Sprint reported net income of $383 million in 3Q 2013 against a loss of $767 million in the same quarter last year on the back of $1.4 billion gains related to its acquisition of Clearwire. Driven by an all-time record in its Sprint platform postpaid service revenue and average revenue per user (or ARPU), total wireless service revenues of over $7.3 billion were up year-over-year for the 13th consecutive quarter. Adjusted EBITDA of $1.34 billion grew 5% year-over-year despite significant headwinds associated with a loss of revenue due to the shutdown of the Nextel platform, as well as the diluted impacts from the SoftBank and Clearwire transactions.

The company recorded the best-ever Sprint platform postpaid ARPU and service revenue. It sold nearly 5 million smartphones in the third quarter, with postpaid smartphone sales mix reaching record levels. It sold nearly 1.4 million iPhones, of which 40% were to new customers. For the quarter, the Sprint platform lost 360,000 postpaid subscribers and gained 84,000 prepaid subscribers and 181,000 wholesale and affiliate subscribers.

The company recently announced it had priced its previously announced offering of $2.5 billion aggregate principal amount of 7.125% Notes due 2024. The company intends to use the net proceeds from the offering of the Notes for general corporate purposes, which may include, among other things, retirement or service requirements of outstanding debt and network expansion and modernization.

It said that as part of Network Vision deployment, Sprint has launched 4G LTE in 230 total markets across the country and expects to provide 200 million people with 4G LTE by the end of 2013. Analysts believe the roll-out is slower compared to the company’s peers.

The company expects that its network investments, when combined with its unique service offerings such as the unlimited LTE plans, will improve its competitive positioning in the U.S. wireless market, which is already reaching saturation levels.

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According to hedgefundletters.com, Omega Advisors primarily invests in domestic public equity and dabbles in markets such as bonds and commodities. When the fund focuses on investing in value equities, it uses a combination of a top-down approach, to carefully choose the sector, and a long-short fundamental analysis. To create his portfolios, Leon G. Cooperman takes a bottom-up approach to form his portfolios with the S&P 500 index as the benchmark.

Cooperman was born in New York and as an undergraduate at Hunter College, he joined and was an active member of Alpha Epsilon Pi. After graduating, he became a Xerox quality control engineer in 1965. He later received his M.B.A. from Columbia Business School, graduating in 1967. After 25 years of service, Leon Cooperman retired in 1991 from his positions as general partner of Goldman, Sachs & Co. and as chairman and chief executive officer of Goldman Sachs Asset Management in order to set up Omega.

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