Rating agency, Moody's Investor service has upgraded its outlook
Leap Wireless International Inc.
) from negative to stable on the back of the prepaid carrier's plan
to trim down its debt.
Leap Wireless's wholly-owned subsidiary Cricket Communications
Inc. has announced that it has arranged a term loan facility of
$400 million to pay back its existing 10% senior notes of $300
million due on 2015, this is attributable for the raised outlook.
The remaining proceeds from the loan will be used for general
Recently, Leap Wireless declared dismal second-quarter 2012
results, wherein both revenue and EPS fell short of the Zacks
Consensus Estimates. The slump in quarterly result was buoyed by
increased churn rate. Leap currently holds Moody's B2 rating, which
is five notches above the junk category.
To transcend this tough situation, the company is trying to
reduce its operating costs other than considering asset sale
options. The company has declared to reduce its capital spending by
13% for 2012. We believe controlled capital spending coupled with
the debt reduction effort will help the company to improve
operation, which in turn will help the company to improve its cash
The pay-as-you-go carrier has vowed to offer the latest iPhone 5
from September 25, 2012. It will be the first company to launch
prepaid iphone5 and will be mainly targeting the young customers.
Though it faces stiff competition from the likes of
Verizon Communication Inc.
), we believe its lower tariff plan will mainly attract the low-end
customers of these national carriers. However, if the company's
strategic initiative fails to deliver it could face further cut in
ratings from Moody's.
The current Zacks Consensus Estimate for Leap Wireless
International Inc. is pegged at ($0.76) for the third quarter of
2012 with a growth rate estimate of 15.33%. For 2012, the Zacks
Consensus Estimate stands at ($3.84) with a growth rate of 6.49%
while for 2013, the Zacks Consensus Estimate stands at ($3.11) with
a growth rate of 19.12%.
We retain our long-term Neutral recommendation on Leap Wireless
Inc. Currently, it has a Zacks #3 Rank, implying a short-term Hold
LEAP WIRELESS (LEAP): Free Stock Analysis
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