We reaffirm our long-term Neutral recommendation on
Leap Wireless International Inc.
) based on our assessment that the stock is currently fairly
Why Kept at Neutral?
Leap Wireless reported mixed financial results for the fourth
quarter of 2012. The bottom line topped the Zacks Consensus
Estimate but the top line missed the same. However, the company
continues to suffer huge losses despite beating the Zacks
Further, Leap Wireless lost a significant amount of
subscribers in the reported quarter. The company's consolidated
churn rate was 4.6% compared with 3.9% in the prior-year
Meanwhile, the stock price plummeted 44% in the last year,
which may provide a cushion to the stock price. Leap Wireless
restructured its business model to emphasize on higher ARPU
(average revenue per user) generating smartphone subscribers,
while shedding the less profitable wireless broadband
subscribers. In the reported quarter, ARPU nudged up by1.5% year
over year to $42.73. Leap Wireless currently has a Zacks Rank #3
Balanced View on Leap Wireless
A major problem for Leap Wireless is the growing competitive
pressure in the prepaid wireless segment due to industry
consolidation. Its closest competitor,
MetroPCS Communications Inc.
) recently received the approval of the Federal Communications
Commission for its proposed merger with T-Mobile USA, the fourth
largest telecom operator in the U.S. Boost Mobile and Virgin
Mobile U.S.A. are the subsidiaries of
Sprint Nextel Corp.
), the third largest telecom carrier in the U.S.
Another competitor, Tracfone, is the subsidiary of
America Movil SAB
), which is controlled by world's richest person, Carlos
Nevertheless, we believe Leap Wireless remains one of the
low-cost wireless service providers in the U.S., which enables it
to roll out a range of cheap service plans.The company has
decided to offer LTE services in two-third of its overall network
foothold in the next 2-3 years.Leap Wireless also plans to expand
coverage in urban and suburban markets while avoiding less
populated areas to keep its infrastructural cost low.
AMER MOVIL-ADR (AMX): Free Stock Analysis
LEAP WIRELESS (LEAP): Free Stock Analysis
METROPCS COMMUN (PCS): Free Stock Analysis
SPRINT NEXTEL (S): Free Stock Analysis Report
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