Seeking Alpha
Profile| Send Message| ()  

MetroPCS Communications (PCS) is a popular wireless and broadband services company. It offers value for consumers and the ability to have a mobile phone without a contract as most competitors require. While this company does not offer the Apple (AAPL) iPhone, it does offer a variety of popular smartphones. The affordability and lack of commitment has led many consumers to switch to MetroPCS. Shares of this company have dropped along with the rest of the market and that is giving investors a better entry point. The fundamentals of this company remain strong and there are several reasons why it makes sense to consider the stock now:

  1. MetroPCS shares appear undervalued in a number of ways. The price-to-earnings ratio is just around 9 times earnings, which is well below the market average of nearly 13. It is trading close to book value, which is $8.09 per share and for less than half of the 52-week high.
  2. A number of large telecommunication companies are looking for acquisitions in order to increase spectrum bandwidth. Some analysts believe MetroPCS is a likely takeover target since a buyout could quickly benefit the acquiring company with more bandwidth and a larger customer base. A takeover offer for this or even another similar company could spark renewed interest in these shares.
  3. The average analyst target for MetroPCS shares is $12.31. If the stock hits that target, it would provide investors with gains of nearly 50%. In the past few months, these shares have tended to find support at about $8, so it looks like any additional downside is probably limited from current levels.
  4. MetroPCS recently announced it would raise prices from $60 to $70 per month for its unlimited plan. Even at that level, this plan remains one of the most competitive in the industry and it still offers consumers these rates without the contract commitment. Because of this, it's not likely that the rate hike will lead to significant service cancellations. At the same time, the extra $10 per month multiplied by the large customer base could significantly boost profit margins in the coming months.
  5. This stock also looks undervalued when compared with its peers. Here are some data points for MetroPCS from Yahoo Finance and below, a couple of competitors which make this stock look like a relative bargain.

Key Data Points From Yahoo Finance:
52-Week Range: $7.51 to $18.79
Dividend: none
2012 Earnings Estimate: 89 cents per share
2013 Earnings Estimate: $1.09 per share
P/E Ratio: about 9 times earnings

Leap Wireless (LEAP) is another wireless communications provider. The valuation of this stock makes MetroPCS shares look very undervalued because while both stocks are priced close to $8 per share, Leap is expected to keep posting significant losses while MetroPCS continues to post solid profits. Leap shares trade close to book value, which is $7.77 per share. This company has also been considered to be a potential takeover target, but the stock looks too speculative for some investors due to estimates for continued losses.

Key Data Points From Yahoo Finance:
52-Week Range: $5.50 to $17.66
Dividend: none
2012 Earnings Estimate: a loss of $2.91 per share
2013 Earnings Estimate: a loss of $1.75 per share
P/E Ratio: n/a due to loss estimates

Sprint Nextel Corporation (S) is a leading wireless communications provider. This company is also considered to be speculative by many investors because it carries a high level of debt and losses are expected to continue. One of the positives for Sprint is that it does offer the ever-popular iPhone. However, the addition of iPhone does not appear to be enough to reverse the significant losses at Sprint. Once again, MetroPCS appears to be a much better value, offering less risk and plenty of upside.

Key Data Points From Yahoo Finance:
52-Week Range: $2.10 to $6.45
Dividend: none
2012 Earnings Estimate: a loss of $1.45 per share
2013 Earnings Estimate: a loss of 97 cents per share
P/E Ratio: n/a due to loss estimates

Disclaimer: Data sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Source: 5 Reasons MetroPCS Shares Could Have About 50% Upside