On Dec 27, we maintained our Neutral recommendation on Leap Wireless International Inc. . 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 - Free Report) , ID Systems Inc. (IDSY - Free Report) and Inteliquent, Inc. are set to gain from the robust growth of LTE deployment in the upcoming days.
Currently, all three have a Zacks Rank #2 (Buy).