We reaffirm our long-term Neutral recommendation on
Leap Wireless International Inc.
) following its mixed third-quarter of 2012 results. On the back
of spectrum sale, the company topped the Zacks Consensus Estimate
but the top line missed the same.
Leap Wireless remains one of the low cost prepaid wireless
service providers in the U.S, which offers attractive service
plans to its customers. The company is continuously expanding its
smartphone portfolio inclusive of
) new iPhone 5. Moreover, increased competitions from other low
cost carriers have forced the company to upgrade its subscriber
base by deploying 4G LTE service across major cities in the
Leap Wireless has launched an array of attractive service
plans for its customers. The company made its popular Muve Music
service available to all Android-based smartphones at no extra
cost and without any contract terms, hence helping the company to
improve its subscriber base. In addition, the company also
launched a new handset financing program for the customers, which
will facilitate them to buy high-end smartphones in
Despite these positive traits, Leap Wireless continues to
suffer from huge subscriber loss. During the reported quarter,
the company lost around 268,984 customers. Moreover, the sale of
iPhone devices without any subsidy will further suppress the
company's margins in the forthcoming quarters.
As Leap Wireless is suffering from huge spectrum crunch, so it
is planning to deploy 4G LTE networks in two-thirds of its
overall network foothold in the next 2-3 years. However, highly
leveraged balance sheet may act as a strong impediment for the
company to support such expansive business drive going
Currently, the company has a Zacks #3 Rank, implying a
short-term Hold rating on the stock.
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