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On Jun 21, we maintained our Neutral recommendation on Leap Wireless International Inc. . In the recently concluded first quarter, the bottom line missed the Zacks Consensus Estimate but the top line outpaced the same.

Why Maintained?

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.

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 sales but will also help in retaining and adding customers.

During the quarter, Leap Wireless launched 3 4GLTE-based smartphones (inclusive of HTC One SV smartphone) along with Muve Music version 3.0 integrated with international calling features. In fiscal 2013, the company plans to introduce five new 4GLTE-based smartphones inclusive of the popular Samsung Galaxy S4 and also sets a target 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 heavily on profitability. Moreover, a highly leveraged balance sheet may limit the company’s 4GLTE deployment objective as it requires a lot of funds. Meanwhile, the stock price plummeted 42% in the last year and we believe that Leap Wireless is currently fairly valued.

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

Other Stocks Outlook in Related Industries    

Other stocks in this sector like TELUS Corp. (TU - Analyst Report), Sprint Nextel Corp. (S - Analyst Report) and T-Mobile US, Inc. (TMUS - Snapshot Report) are set to gain from the robust growth of LTE deployments in the upcoming days. These companies will declare their fourth-quarter results next month.

Currently, TELUS Corporation has a Zacks Rank #2 (Buy) while both Sprint and T-Mobile US have a Zacks Rank #3 (Hold).

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