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Dear Mr. Berko:

Dear B.L.:

I’ve been a Sprint (S-$4.06) critic since Gary Forsee was CEO. This guy couldn’t manage a two-car funeral, and if you stand close enough to him, you can hear the ocean. Forsee is an engineer with zero people skills, sort of like having bread mold as your next-door neighbor. Sprint is now run by President and CEO Dan Hesse, who is so smooth that he could convince a shark to become a vegetarian. I like the guy, and Sprint has become a much stronger company since he took the helm more than a year ago. Hesse is a people’s kind of guy with a warm smile and a “let’s get it done right” attitude.

Forsee’s botched merger of Nextel into Sprint was a nuclear disaster, and the ensuing difficulties led to huge subscriber losses. Sprint is still losing customers, but at a much slower rate. The company now has 40.1 million subscribers, including its very profitable and less-costly resellers like Boost, and recently purchased Virgin Mobile. And as consumers continue to squeeze their wallets, they gravitate toward the less-expensive prepaid plans that don’t require lengthy service contracts. Sprint now owns 17 percent of this market, which is expected to grow about 4 percent annually over the next five years.

I’d buy the stock. I think Sprint could move to the $18-$21 level in three to five years, because it now has the resources to regain its lost footing. After a wave of consolidations, Sprint is the third-largest wireless carrier in the United States. In fact, it is the only one of the Big Three cellular companies that is not affiliated with a major phone company. This independence makes Sprint an ideal choice for cable companies and others that are seeking to offer wireless services to customers.

Meanwhile, the company’s cost controls have begun to show results, and customer service has improved markedly. Recent restructuring actions have produced $1.2 billion annual cost savings and discussions with Ericsson and Level 3 regarding tower management and long-distance access will provide future annual cost benefits.

Liquidity exceeds $6 billion with free cash flow per share exceeding $2.25. Sprint will probably lose $0.35 a share in 2009, but the Street expects a nickel profit in 2010 and as much as $1.10 a share by 2013. The shares trade a couple points under their $6.40 book value, and management believes it can post $33 billion in revenues this year.

Though I believe Sprint’s shares have the potential to increase four- to fivefold by 2014, I would be derelict for not telling you that there’s still substantial risk, and that the stock is suitable only for those with high risk tolerance.

Sprint does not pay a dividend, but you might consider the purchase of 350 shares of the common stock plus 100 shares of PYG ($15.76), which is the ML Depositor Trust 7 percent Sprint Capital Certificates. In a sense, you’re creating your own artificial convertible bond. The $1.75 PYG dividend produces an 11 percent current return on a $15.76 cost basis. The combination of 350 shares of common stock plus 100 shares of the Sprint PYG will cost about $2,925 and provide a 6 percent current return. The Sprint PYG is rated BB and is callable at $25. And as Sprint’s income statement improves, I believe that PYG could move to the $20 level in the coming three to five years. Meanwhile, there are some junk buyers who might want to own just the PYG because of its lovely double-digit return.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775 or e-mail him at mjberko@yahoo.com. © 2009 Creators.Com