AT&T expands its footprint on prepaid market
With the acquisition, AT&T Inc. (NYSE:T) is the owner of Leap Wireless’ licenses, network assets, retail stores and around 5 million subscribers. Moreover, AT&T Inc. (NYSE:T) could also utilize Cricket’s distribution channel and expand the presence of Cricket to additional cities in the U.S. According to AT&T Inc. (NYSE:T), the acquisition will fast track AT&T Inc. (NYSE:T) into the highly competitive prepaid segment of the wireless industry. According to Forrester’s tech analyst Charles Golvin, AT&T could offer its customers more reliable and faster wireless data in congested areas with Leap Wireless’ spectrum holdings, satisfying long-term data demands. Currently, AT&T had around 107 million wireless customers, but only 7.1 million prepaid customers.
In the first quarter 2013, AT&T’s mobile Internet has driven the company’s wireless gains. Its mobile data experienced an increase of 21%, while the Wireless EBITDA service margin has expanded to as high as 43.2%, a decent improvement compared to the Wireless EBITDA of 42.3% in the first quarter last year. For the full year 2013, AT&T expected to generate mid-single digit service revenue growth. The company also has kept repurchasing its shares on the market. It estimated that it would keep buying back its shares under its new 300 million share repurchase program, accounting for around 5.5% of the company’s common shares outstanding.
AT&T is trading at $35.80 per share, with a total market cap of $192.67 billion. The market values AT&T at a lower valuation than Leap Wireless, at 9.07 times its trailing EBITDA. Income investors might love AT&T with its juicy dividend yield at 5.1%. However, investors should worry about its high payout ratio at 135%, meaning that the company has paid dividends higher than what it has earned in the past twelve months.
My Foolish take
Leap Wireless International, Inc. (NASDAQ:LEAP) has experienced a consistent growth in revenue but consistent net losses and high amount of goodwill and intangible assets. Moreover, with the leveraged balance sheet, AT&T seems to overpay Leap Wireless at its offering price of $15 per share. Sprint Nextel is bought out at a much cheaper valuation. AT&T, despite a juicy dividend yield, is not my taste either because of quite high payout ratio.
The article Did Leap Wireless Get a Fair Price From AT&T? originally appeared on Fool.com and is written by Anh Hoang.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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