Goldman Sachs Raises Estimates On PCS, LEAP

Goldman Sachs, in its 1Q preview of the two companies, has raised its estimates on both MetroPCS PCS and Leap Wireless LEAP. The PT on PCS is now set at $16, up from $14 and Leap is at $15 from the previous $12. Says Goldman Sachs, in the report, “We are raising estimates for MetroPCS and Leap, reflecting the positive mix shift increasing smartphone uptake is driving at both companies. Given the prepaid market's high level of demand for smartphones and value-based data plans, we expect this to serve as a beneficial tailwind into a seasonally strong 1Q. We see the most direct benefits of rising smartphone penetration for PCS/LEAP on churn and ARPU, both of which have been negatively impacted in recent years due to voice competition at the low end of the prepaid segment. As PCS/LEAP introduce higher-end devices and move “upstream” towards a more data-centric, value customer, we believe the higher utility attached to smartphones could further drive churn/ARPU improvements in 2011.” PCS closed at $16.66 and LEAP at $16.36 on Friday.