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Sprint’s Forward Valuations: How’s It Running Next to Peers?

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Sprint’s forward PE valuations

The two best valuation multiples used for valuing telecom companies like Sprint (S) are the forward PE (price-to-earnings) and the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples, given the relatively stable and visible nature of the company’s earnings.

Remember, PE multiples represent what one share can buy for an equity investor. On January 16, 2017, Sprint was trading at a forward PE multiple of ~185.1x, which a lot higher than that of Verizon Communications (VZ), AT&T (T), and T-Mobile (TMUS), whose PE ratios stood at ~13.12x, ~13.81x and ~31.24x, respectively.

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Sprint’s forward EV-to-EBITDA valuation

The capital-intensive telecom industry has high levels of depreciation and amortization as well as varying degrees of debt and operating leases. To neutralize these factors, we use the EV-to-EBITDA ratio to value telecom stocks. The forward EV-to-EBITDA ratio shows what investors are willing to pay for the next four quarters of estimated EBITDA.

Sprint’s forward EV-to-EBITDA metric was ~6.09x which was lower than T-Mobile’s ~6.60x. Integrated US telecom giants Verizon and AT&T had similar EV-to-EBITDA metrics of ~6.85x and ~6.78x, respectively.

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