Sprint Nextel (NYSE:S) Network Vision Project Better Than Anticipated

The implementation of Sprint Nextel's (NYSE:S) Network Vision project appears to be poised to have a much more positive impact on the company than originally expected.

Canaccord noted, "The fastest U.S. mobile-phone carrier had its target hiked by Credit Suisse, which expects Sprint to outperform the market with the 'highest conviction.' The broker has updated its analysis of the savings and costs associated with Sprint's Network Vision project, a plan to spend $5.0 billion to upgrade Sprint's network over the next five years. The firm has raised its estimate of annual cost savings from $2.0 billion to $2.5 billion (below management’s estimate of more than $3.0 billion), while lowering our estimate of incremental costs from $5.5 to 4.5 billion (mid point of management’s guidance). These changes push the NPV of the project from $2.00 to $4.00 a share. Credit Suisse believes the project will be transformative, if executed successfully. Cost savings should drive 800 bps of EBITDA margin expansion on top of the 500 bps of organic margin expansion (organic expansion driven by revenue growth coupled with high operating leverage). FCF should increase 3x from $2.0 billion in 2010 to $6.1 billion by the end of the project. In addition to adding $4.00 a share to Sprint's value, Credit Suisse notes the project also helps pave the way for a future Sprint-TMobile (NYSE: DT) combination, as both companies converge on a common LTE network standard. The firm believes investors should evaluate this project the way they would a wireless M&A deal (after all, Vision will deliver synergies that never materialized from the Sprint-Nextel merger). Sprint should get much of the credit for "synergies" long before the integration is complete (most of synergy upside in telecom deals is reflected in stock within nine months of announcement). Early evidence of effective execution will be important. In addition, investors will be more likely to give Sprint credit for savings before they are delivered if they demonstrate continued organic improvement in the core business over the next couple of quarters, before spending on Vision begins."

Sprint was trading at $4.36, down $0.01, or 0.23 percent, as of 12:55 PM EST.