Leap Wireless: Always a Bridesmaid, Never a Bride? Stock Thinks So

It’s hard to say what smartphone carrier will be the biggest winner or loser in a proposed merger of MetroPCS Communications (PCS) and Deutsche Telekom’s T-Mobile: network-challenged MetroPCS, customer-losing T-Mobile or scared competitor Sprint Nextel (S), which reportedly is working on a counterbid for MetroPCS. But the company with at least much at stake here – and the least amount of control over how it turns out – is Leap Wireless International (LEAP).

As a pre-paid seller, Leap is a direct competitor of MetroPCS with the distinct disadvantage of being a fraction of its size. Leap has a market cap of about $467 million and annual revenues of about $3.2 billion. Leap has at times been courted by MetroPCS as a merger partner, and seeing that suitor marry someone else was a bummer for some investors.

LEAP Chart

LEAP data by YCharts

But for a few blessed hours after the MetroPCS-T-Mobile announcement, it looked like Leap would get a second chance as a target. Because wouldn’t Sprint have to buy it with MetroPCS gone?

LEAP Chart

LEAP data by YCharts

Alas, that crash is the power of analysts pooh-poohing a Leap/Sprint pair-up all around. Leap, which is losing money in several ways, is seen as too much of a headache for Sprint, which is just beginning to recover from its own merger problems. (The Nextel part, from way back in 2004.) The elimination of at least one particular suitor led J.P. Morgan to downgrade Leap shares on Wednesday, while others noted the company’s flaws as a marriage partner.

LEAP Net Income TTM Chart

LEAP Net Income TTM data by YCharts

A lot of investor types don’t like the idea of Sprint going after MetroPCS either. Sprint was all prepared to make an offer earlier this year before its board put a kibosh on the whole plan. (And that was when MetroPCS shares were a whole lot cheaper.) Sprint’s share price has more than doubled this year, marking their first serious gains in many years.

S Chart

S data by YCharts

It may be some consolation to Leap that investors don’t appear convinced yet they would make a lot of money off a MetroPCS merger with anyone. On Thursday, Nomura Securities downgraded MetroPCS to sell.

PCS Chart

PCS data by YCharts

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.



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