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Neutral Stance on LEAP - Analyst Blog

Posted: 6/21/2013 5:32:00 PM
Referenced Stocks: LEAP;S;TMUS;TU

On Jun 21, we maintained our Neutral recommendation on Leap Wireless International Inc. ( LEAP ). In the recently concluded first quarter, the bottom line missed the Zacks Consensus Estimate but the top line outpaced the same.

Why Maintained?

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.

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 sales but will also help in retaining and adding customers.

During the quarter, Leap Wireless launched 3 4GLTE-based smartphones (inclusive of HTC One SV smartphone) along with Muve Music version 3.0 integrated with international calling features. In fiscal 2013, the company plans to introduce five new 4GLTE-based smartphones inclusive of the popular Samsung Galaxy S4 and also sets a target 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 heavily on profitability. Moreover, a highly leveraged balance sheet may limit the company's 4GLTE deployment objective as it requires a lot of funds. Meanwhile, the stock price plummeted 42% in the last year and we believe that Leap Wireless is currently fairly valued.

Leap Wireless carries a Zacks Rank #3 (Hold).

Other Stocks Outlook in Related Industries 

Other stocks in this sector like TELUS Corp. ( TU ), Sprint Nextel Corp. ( S ) and T-Mobile US, Inc. ( TMUS ) are set to gain from the robust growth of LTE deployments in the upcoming days. These companies will declare their fourth-quarter results next month.

Currently, TELUS Corporation has a Zacks Rank #2 (Buy) while both Sprint and T-Mobile US have a Zacks Rank #3 (Hold).

LEAP WIRELESS (LEAP): Free Stock Analysis Report

SPRINT NEXTEL (S): Free Stock Analysis Report

T-MOBILE US INC (TMUS): Free Stock Analysis Report

TELUS CORP (TU): Free Stock Analysis Report

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