Leap Wireless International Inc. (LEAP): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
Leap Wireless reported disappointing financial results for the third quarter of 2013, as both its top and bottom line missed the corresponding Zacks Consensus Estimate. The U.S. telecom giant, AT&T has decided to acquire Leap Wireless and is awaiting regulatory approval. Continued loss of subscribers coupled with significant increase in promotional activities may weigh heavy on profitability. However, the launch of smartphones coupled with the elimination of non-profitable subscribers may drive ARPU going forward. Meanwhile, the stock price soared 238% in the last year and is currently trading at the high-end of the 52-week range. We believe that Leap Wireless is currently fairly valued and therefore, reaffirm our long-term Neutral recommendation on the stock.

Overview:

Based in San Diego, California, Leap Wireless International Inc (LEAP) provides digital wireless communication services in the U.S. under the "Cricket" brand primarily through its wholly owned subsidiary, Cricket Communications Inc. The company was incorporated in Jun 1998 (as Delaware Corporation) as a spin-off of Qualcomm and launched its popular Cricket wireless service in Mar 1999, in Tennessee. Leap owns an 82.5% non-controlling membership interest in Denali, a digital wireless service provider in the upper Midwest and a 73.3% non-controlling interest in Oregon-based LCW Wireless. Both these entities offer the company's services in their respective territories.

Leap Wireless is one of the leading players in the unlimited prepaid wireless market and offers its services through self-operated retail locations, kiosks, authorized dealers and distributors. Leap primarily focuses on underserved minority and low income market segments. Leap, along with its subsidiaries, operates in 34 states and holds licenses in 35 of the top 50 U.S. markets including Chicago, Philadelphia, Washington, D.C. and Baltimore. Through a single operating segment, Leap offers unlimited local and long-distance wireless services as well as various calling features and messaging services. The company's primary service is Cricket Wireless that offers unlimited wireless voice and data services for a flat monthly rate.

Leap Wireless reports in two operating segments:

Wireless Services: This segment offers wireless services (voice & data) on a month-to-month basis, generally under prepaid arrangements. Leap's basic service plan allows Cricket customers to make unlimited calls within their service area and receive unlimited calls from any area. Its premium rate plans bundle unlimited local and long-distance voice service with unlimited calling features/messaging, roaming, and mobile Internet and directory services. The segment accounted for nearly 93.8% of the total revenue in 2012.

Equipments: This segment offers wireless handsets and accessories through Cricket-owned stores and third-party dealers. The segment accounted for the remaining 6.2% of the total revenue in 2012.

Recent Development

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

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