We are maintaining Neutral recommendation on
). The company's third quarter performance surpassed the Zacks
Consensus Estimate and the prior-year results on strong operating
We believe that MetroPCS stands to benefit from being one of the
lowest cost wireless service providers in the U.S. that enables
it to roll out a range of cheap service plans. While the company
continues to seek spectrum opportunities, enhancing network
capacity through technology remains a cost-effective, near-term
alternative. MetroPCS is also expected to reap benefits from the
mobile broadband momentum success of "Wireless for All" service
plans that foster continued financial and subscriber growth.
MetroPCS also remains advantageously poised to benefit from the
emerging market of prepaid services that are expected to account
for approximately one-fourth of the wireless market share by 2018
given the rapidly drifting interest of customers from post-paid
because of economic pressure. The company offers its services
under attractive fixed-rate, unlimited usage-based price plans
that do not require customers to enter into long-term contracts
and keep minimum balances or deposits.
Additionally, MetroPCS is focused on expanding its footprint in
the 4G long-term evolution (LTE) market and launched the "4G LTE
for All" program in August. The advanced 4G LTE network, cost
effective 4G devices and affordable 4G service plans are expected
to remain the key drivers of MetroPCS' 4G LTE for All program.
The company has already deployed high-speed 4G LTE services in
most of its major markets and covers 97% of its market with a 5x5
megahertz channel bandwidth.
However, MetroPCS operates in an intensely competitive domestic
low-cost prepaid wireless market. At the regional level, the
company competes head-to-head with Leap Wireless (Cricket) and
Pocket Communications. The company has been increasingly
challenged by the aggressive rollout of competitive price plans
by some of its larger rivals such as
Sprint Nextel Corp.
) to capitalize on the attractive growth opportunity in the
MetroPCS service plans include applicable taxes and regulatory
fees. If the government and regulatory agencies increase the
taxes and regulatory fees, then the company may have to switch to
higher cost plans. This may lead to higher customer churn and
lower subscriber addition that will hurt the company's revenue
The dynamics of the wireless industry is significantly governed
by technological innovations. The company's relatively backdated
CDMA network platform does not support smartphone offerings and
is increasingly becoming a headwind to churn rates that have
increased significantly over the past quarters.
Hence, we see the stock as having limited upside potential and
expect MetroPCS to perform in line with the broader market.
METROPCS COMMUN (PCS): Free Stock Analysis
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