This Stock Could Leap Higher

News today regarding Leap Wireless (NASDAQ - $5.82), in our view, should be used as a trigger to buy the stock.  For the uninitiated, LEAP owns and operates Cricket Wireless, a leading pre-paid, low-cost provider of mobile services.  The Company has 5.5 million customers in the U.S. that use its network and piggyback along the Sprint network in areas of poor or limited coverage.

Much like the rest of the wireless industry, LEAP’s stock has had a really bad year.  The stock is about 20% above its 52-week low.  Higher than expected customer churn rates and lower sign-ups have hurt the stock recently.  However, today it was announced that as of June 22, Cricket will be the first prepaid wireless provider to offer the iPhone.

This is significant as it illustrates the Company’s position in the space and dovetails with its strategy to offer a variety of smartphones.  With the first-mover advantage, Cricket should benefit from new customers coming on board and using the low-cost service with a popular phone.   It may also spark existing customers to switch phones or services.  Apple (NASDAQ – AAPL), for its part, gets to have exposure in a small but growing market as iPhone sales have likely matured in its existing markets, to a degree.

LEAP, which generates over $3 billion in annual revenue and a mountain of losses, is frequently cited as a takeover target.  On the surface, LEAP is very cheap, as its market cap is roughly the same as Clearwire (NASDAQ – CLWR) despite the fact that LEAP has 3x as many subscribers and generates 3x as much revenue per year.

The Apple deal is a credibility enhancer for LEAP and with the low valuation, as well as the boost in business and status, it may well be viewed as a turning point in the stock and even as an M&A target.  A 20-25% rise over the summer is not out of the question.