Leap Drops After Downgrade, Short Sale Recommendation
Leap Wireless International Inc. (LEAP) fell the most since August in Nasdaq trading after Citigroup Inc. cut its rating on the shares to “hold” and Credit Suisse Group AG recommended traders sell the stock short.
Leap was reduced from “buy” by Michael Rollins, an analyst at Citigroup in New York, who said the San Diego-based carrier’s customer growth rate will probably slow.
The company may lose customers to larger competitor Sprint Nextel Corp. (S)’s pay-by-the-minute brand, set to be introduced this month, said Jonathan Chaplin, an analyst at Credit Suisse in New York. He recommended the stock be sold short. He called the industry “highly competitive” and said price cuts may also hurt MetroPCS Communications Inc. (PCS), a Leap competitor.
“Continued pricing declines will weigh on margins and could wipe out much of the equity value at both Leap and PCS longer term,” Chaplin said in a research note today.
Leap declined $2.52, or 15 percent, to $14.26 at 4 p.m. New York time in Nasdaq Stock Market trading, the largest single-day loss since Aug. 7. MetroPCS dropped 91 cents, or 11 percent, to $7.15 in New York Stock Exchange composite trading, its biggest slide since Jan. 12.
Short-sellers aim to make money by borrowing shares from brokers, selling the stock and then buying it back at a lower price. The traders then return the borrowed shares and pocket any profits.
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