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Sprint’s Cash Flow and Liquidity: A Cause for Concern?

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Aug. 7 2019, Published 3:07 p.m. ET

Over the past few quarters, Sprint (S) has been the only major US mobile operator that has struggled to deliver a profit. Sprint reported adjusted EPS of -$0.03 on revenue of $8.14 billion in the first quarter of fiscal 2019 (quarter ended June 30). The company reported adjusted EPS of $0.04 on revenue of $8.13 billion in the first quarter of fiscal 2018.

Sprint reported total general-purpose liquidity of $7.4 billion at the end of the first quarter of fiscal 2019, including $4.9 billion of cash and cash equivalents. The telecom company has about $100 million available under vendor financing agreements that it can use to purchase 2.5 GHz network equipment. Sprint reported total general-purpose liquidity of $9.8 billion in the previous quarter and $11.2 billion in the first quarter of fiscal 2018.

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As of June 30, Sprint’s balance sheet is constrained with $37.96 billion of total debt and about $1.5 billion of debt maturities over the next four quarters. In the first quarter of fiscal 2019, the company reported adjusted free cash flow of -$58 million compared to -$539 million in the previous quarter and $8 million in the first quarter of fiscal 2018.

We believe that Sprint has an adequate near-term general-purpose liquidity position despite its free cash flow burn over the last few quarters. The company’s FCF primarily occurred because the company has no significant maturities due until March 2020. In the first quarter of fiscal 2019, Sprint repaid $1.7 billion of higher coupon debt.

Read our analysis of Sprint’s first-quarter performance in Sprint Loses Stock, Keeps Loyal Customers.

Sprint’s stock returns

On Tuesday, Sprint closed at $6.71, which was 0.75% higher than its previous closing price. This closing price was 16.7% lower than its 52-week high of $8.06 and 23.3% higher than its 52-week low of $5.44. Plus, the company’s market cap is $27.5 billion.

Based on Sprint’s closing price on Tuesday, the company has reported returns of -10.8% in the last five trading days. The telecom company reported returns of -4.7% in the trailing one-month period and 8.6% in the trailing 12-month period. In addition, the company has reported returns of 15.3% since the beginning of 2019. Sprint stock has risen 9.4% in the last three years and 17.1% in the past five years.

Technical levels

Based on its closing price on Tuesday, Sprint stock was trading 6.5% below its 20-day moving average of $7.18. Plus, Sprint stock was trading 4.4% below its 50-day moving average of $7.02 and 3.1% above its 100-day moving average of $6.51.

On the upside, the company’s immediate key resistance lies near $6.76, while $6.65 could act as an immediate key support level on a daily basis. The telecom company’s 14-day RSI (relative strength index) score was 41, which indicates that investors are neutral toward the stock.

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