Wells Fargo said they see Leap Wireless (Nasdaq:LEAP) and MetroPCS (NYSE:PCS) benefiting strongly from the lower churn rates, and have upside potential in the fourth quarter.
Wells said, "Expect both PCs and Leap to show significant
momentum from Q3 levels - Based on these channel checks--we believe both Leap Wireless and MetroPCS have benefited from lower churn trends as a result of their new all inclusive tax/fee plans as well as the better selection of handsets. While gross adds have remained solid, we believe the bigger benefit has been seen in churn trends. As a result of these findings, we believe there is upside potential to Street estimates for Q4 net adds for both companies."
"We believe both PCS and LEAP are well positioned to realize positive trends in Q4 and early 2011. There seems to be a macro shift now occuring which should benefit both operators. As the addressable market for prepay continues to expand, both companies should be able to realize from additional subscriber growth--without having to spend the heavy capital burden of lighting up new markets. In terms of a longer term idea, we continue to prefer PCS over LEAP as PCS should continue to see better sub growth, higher margins and free cash flow generation, in our view."
Leap Wireless was trading at $13.16, gaining $0.90, or 7.34 percent, as of 12:47 PM EST. PCS was trading at $12.91, gaining $0.28, or 2.22 percent.
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