The Zacks Analyst Blog Highlights: Sprint Nextel, AT&T, Verizon Communications, j2 Global Communications and EasyLink Services International

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May 13, 2011, 09:45 ET

CHICAGO, May 13, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Sprint Nextel Corp. (NYSE: S), AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ), j2 Global Communications Inc. (Nasdaq: JCOM) and EasyLink Services International Corp. (Nasdaq: ESIC).

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Here are highlights from Thursday's Analyst Blog:

Earnings Scorecard: Sprint

Sprint Nextel Corp. (NYSE: S), the third-largest U.S. wireless carrier, reported first quarter 2011 results on April 28. Adjusted loss bettered the Zacks Consensus Estimate by 7 cents and was 14 cents narrower from the year-ago loss. Total revenue also improved from the year-ago quarter and surpassed the Zacks Consensus Estimate.

First Quarter Review

Sprint delivered improved results despite competitive pressure from its chief rivals AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ). Revenues from the wireless segment increased on strong subscriber growth and lower churn. Wireline revenue, however, remained the dampener.

Sprint added 1.1 million wireless subscribers in the first quarter to reach 51 million. The company's multi-brand prepaid strategy like Assurance Wireless and Virgin Mobile and innovative offers like Boost Mobile's Monthly Unlimited is contributing significantly to the company's subscriber growth.

Prepaid subscribers generated strong growth while the post-paid subscriber fell following the launch of the Verizon iPhone and aggressive pricing by T-Mobile and AT&T. The recently concluded quarter remained depressed by the higher subsidy costs resulting from increased smartphone sales.

Further, the company recorded year-over-year growth in adjusted OIBDA (operating income/loss before depreciation, amortization, asset impairments and abandonments) for the first time in the last four years.

(Read our full coverage on this earnings report: Sprint Ahead, Loss Narrows)

Agreement of Analysts

The trend noticed over the last 30 days shows the analysts' positive bias in estimate revisions for the upcoming quarter and two fiscal years. The analysts' estimates remained unchanged over the last 7 days.

For the second quarter, 15 out of 23 analysts revised their estimates upward while 3 moved downward. Similarly, for fiscal 2011, 15 out of 26 analysts made positive revisions while 6 moved in the opposite direction.

For fiscal 2012, out of 27 analysts, 13 made upward revisions while 8 moved downward.

Earnings Surprises

With respect to earnings surprises, the company's healthy track record is expected to continue in the coming quarters. Sprint produced a positive average earnings surprise of 15.24% over the last four quarters, which suggests that it outpaced the Zacks Consensus Estimate by that amount over the last year.

Neutral Recommendation

We believe Sprint will generate higher revenue due to increased penetration of handsets, lower churn and better ARPU. Sprint's network modernization project is expected to generate substantial synergies over the next few years with reduced costs and more efficient network.

However, we remain cautious due to lower margins in wireless and wireline, higher payments made to Clearwire, higher subsidies and increased competitive threats due to the proposed AT&T/T-Mobile merger. Further, the Network Vision initiative will also dilute margins and free cash flow in the initial years of implementation.

Hence, we are maintaining our long-term Neutral recommendation with the Zacks #3 (Hold) Rank.

j2 Global Upgraded to Outperform

We upgrade our recommendation on j2 Global Communications Inc. (Nasdaq: JCOM) to Outperform. We believe j2 Global's strong financial position and diversified product pipeline, coupled with the future growth prospects of outsourced value-added messaging services, will drive its valuation levels higher in the near future. The Subscriber Usage revenue continues to beat market expectations. This is an important parameter as credit-sensitive customers constitute a majority of the company's sales.

Exploration of new opportunities for both digital facsimile and voice services, through continuous acquisitions, facilitated the company to solidify its market position. J2 Global has achieved huge reduction in cancel rate in the last two quarters. Acquisition of Protus IP Solutions significantly boosted j2 Global's paid Dial in Demand numbers. Full- year 2011 financial outlook provided by management is also very strong.

In the fourth quarter of 2010,j2 Global added more than 500,000 paying DIDs (Dial In Demand). This is the largest quarterly growth since the fourth quarter of 2000. Total paying DID on December 31, 2010 was over 1.9 million. Although the company did not provide DID data for the first quarter of 2011, the Subscribers' revenue in the previous quarter was a record-high $73 million. This indicates positive DID growth momentum. Supported by strong free cash flow, management decided to repurchase up to 10 million common shares by end 2012. That would be about 22% of the company's total shares outstanding.

On March 2011, j2 Global received a legal notice for infringement of patent from EasyLink Services International Corp. (Nasdaq: ESIC), which complained that j2 Global infringes two of its patent related to Facsimile Form Generation System and Autonomous Multi-Function Peripheral Device-based document communications systems and methods.

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