Reiterating LEAP at Neutral - Analyst Blog

On Dec 27, we maintained our Neutral recommendation on Leap Wireless International Inc. (LEAP). In the recently concluded third quarter, both its top and bottom line missed the corresponding Zacks Consensus Estimate.

Why the Reiteration?

Leap Wireless remains one of the low-cost wireless service providers in the U.S., which enables it to rollout a range of cheap service plans, starting at a low of $35 per month. The company made its popular Muve Music service available to all Android-based smartphones at no extra cost and without any contract terms. Moreover, introduction of a new Phone Payment Plan scheme through which customers can purchase handsets at a minimal down payment without any interest or credit profile evaluation will further boost the company's top-line growth.

Currently, Leap Wireless is focusing on upgrading its existing customers by selling Android-based smartphones, which will not only drive the company's top line but will also help in retaining and adding customers.

Samsung's 3G-based Galaxy Discover and 4G-based Galaxy Admire 2 are powered with the latest 4.0 Muve Music version. In fiscal 2013, the company plans to introduce five new 4GLTE-based smartphones inclusive of the popular Samsung Galaxy S4 and also targets to extend its LTE-covered POPs by 10 million from its existing 21 million.

However, continued loss of subscribers coupled with significant increase in promotional activities may weigh on profitability. Moreover, a highly leveraged balance sheet may limit the company's 4GLTE deployment objective as it requires a lot of funds. Moreover, the stock price soared 231% in the last year and we believe that Leap Wireless is currently fairly valued.

Meanwhile, AT&T, Inc. has decided to acquire Leap Wireless completely for nearly $1.2 billion or $15 per share. At present, the transaction is awaiting regulatory approvals and is expected to be complete by the end of the first quarter of fiscal 2014.

Currently, Leap Wireless carries a Zacks Rank #3 (Hold).

Other Stocks Outlook in Related Industries    

Other stocks in this sector like AT&T, Inc. (T), ID Systems Inc. (IDSY) and Inteliquent, Inc. (IQNT) are set to gain from the robust growth of LTE deployment in the upcoming days.

Currently, all three have a Zacks Rank #2 (Buy).