UPDATE: BMO Capital Markets Upgrades Leap Wireless Following AT&T Deal Announcement

In a report published Monday, BMO Capital Markets analyst Kevin Manning upgraded Leap Wireless LEAP from Underperform to Market Perform, and raised the price target from $3.00 to $15.00.

In the report, BMO Capital Markets noted, “We believe AT&T is overpaying for Leap's spectrum. We are surprised at AT&T's willingness to pay so much above market rates for spectrum. AT&T cited Leap as a way to jumpstart its entry into the prepaid segment although Leap too is struggling to compete against more compelling prepaid smartphone offers. The enterprise value including lease obligations is $5.25 billion, which we estimate is $2.31 per MHz Pop, well above all recent comps. We believe AT&T is buying the spectrum so T-Mobile can't, although we believe the deal is unlikely to have much, if any, impact on T-Mobile. We continue to believe that T-Mobile and Sprint will pressure AT&T for low-end subs. If there was to be a counter offer, T-Mobile would be the most likely, but we don't believe T-Mobile will bid higher as it has already swapped significant spectrum with Leap and its more pressing need is low MHz spectrum, which it will likely wait to get at auction. We don't believe regulatory approval will be an issue as AT&T likely gets some leeway from the failed T-Mobile deal, and we don't see any issues from our spectrum screen analysis. We are moving from Underperform to Market Perform on LEAP stock based on the acquisition price.”

Leap Wireless closed on Friday at $7.98.