Piper Jaffray Downgrades Leap Wireless International (LEAP) to Neutral; Competition Remains High

Piper Jaffray downgrades Leap Wireless International (Nasdaq: LEAP) from Overweight to Neutral. Price target lowered from $21 to $18.

Piper analyst says, "Leap's 4Q net adds were ahead of Piper estimates. During an investor conference last week, CEO Doug Hutcheson commented that 4th quarter net additions were about 300k, 75% of which were voice subscribers. This was ahead of our prior forecast of 240k subs, including 100k (42%) broadband subs...Our channel checks indicated that the quarter was tracking closer to our forecast until late in the quarter, when the company began to get traction with its $25 promotional plan. While our checks also indicated that the average person taking this plan usually gets up-sold to the $30+ level, this is still less than the $39 average monthly spend...Looking forward, we believe ARPU could continue to come under pressure and acquisition costs remain at elevated levels as Leap looks to maintain share. In our model, we have increased our selling and marketing cost run rate and modeled in continued pressure on ARPU. As a result, we are slightly lowering our EBITDA forecast for 2010 and beyond. We have correspondingly lowered our 2010 EPS estimate to ($1.56) from ($1.35)...Downgrading to Neutral. Due to the importance of maintaining ARPU and keeping acquisition costs low in this business model, we are reducing our rating to Neutral as it is clear that the current competitive dynamics are likely to remain. Note that potential for an accretive acquisition by MetroPCS (NYSE: PCS) remains a possibility, but there is no reason to believe a deal is imminent."

To see all the upgrades/downgrades on shares of LEAP, visit our Analyst Ratings page.

Leap Wireless International, Inc. (Leap) is a wireless communications carrier that offers digital wireless service in the United States under the Cricket brand.

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