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Stock of the week

October 10, 2011

This week, I like Sprint (S). For a nice overview of Sprint’s rollercoaster on Friday, see here. I think the stock is a solid buy and I like the 19 November $3.50 call options.

Why?

Sprint secured the iPhone 4S, and in a huge way…inked a contract to buy 30 million iPhone units over the next few years. Sprint also is the only major network to continue offering unlimited data plans (cha-ching for the iPhone). We should get some pre-order numbers and preliminary sales projections this week. At $2.41 (down 20% on Friday), I think this is a solid buy.

Why Not?

Sprint haters will likely point out on Friday, their CFO indicated that Sprint may need to return to capital markets to raise funds going forward. All those iPhone4S are e x p e n s i v e !

Why are the haters wrong?

Sprint has not committed to return to capital markets, this is merely a cautious warning from a poorly handled investor meeting.

“Sprint began taking preorders for the iPhone Friday. Sprint said first-day sales “greatly exceeded” its expectations.

Nomura Securities analyst Michael McCormack said the addition of the iPhone would reduce Sprint’s cash flow by $400 million in 2012.

Sprint has some $4.3 billion in cash and another $900 million on its credit line, Mr. Euteneuer said Friday.”

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