Wireless on a Two-Day Tear

For the moment, wireless investors have put their balance sheet concerns behind them.

The sector was rising for a second day in a row after Sprint PCS' (PCS Quote - Cramer on PCS - Stock Picks) announcement Wednesday that the company is on track to meet its financial targets in 2002.

The group was also getting a boost Thursday from Leap Wireless (LWIN Quote - Cramer on LWIN - Stock Picks), which rose 20% to $10.89 after saying customer growth for the first two months of the year had topped its expectations.

Pink Flag

Among wireless names, AT&T Wireless (AWE Quote - Cramer on AWE - Stock Picks) was up 4.8% to $9.71, Ubiquitel (UPCS Quote - Cramer on UPCS - Stock Picks) was higher by 6.2% to $2.23, and SBA Communications (SBAC Quote - Cramer on SBAC - Stock Picks) was ahead 36% to $4.57.

Lately, shares of Sprint PCS were slipping 0.9% to $11.38, following a 20% surge on Wednesday.

Over the past few weeks, the wireless group has been pounded by worries that highly leveraged companies -- such as Sprint and Nextel (NXTL Quote - Cramer on NXTL - Stock Picks) would be unable to relieve their debt obligations.

"The sector continues to be dramatically undervalued because companies were punished for balance sheet issues," said Alex Trominoff, a research analyst at Sanford Bernstein.

Ideal Copy

On Wednesday, Sprint PCS set off a buying spree by reiterating its guidance, saying it expects to add 3 million customers and have EBITDA of $3 billion in 2002. The company forecast 700,000 to 750,000 net customer additions in the first quarter and EBITDA approaching $600 million.

In addition, Sprint began a $2 billion unregistered offering of senior notes on Wednesday, which will be unconditionally guaranteed by the company. Sprint said it would offer to exchange the unregistered senior notes for substantially identical notes following the completion of the offering.

Straight Line

Some analysts breathed a sigh of relief with the Sprint senior note announcement on Wednesday. "As concerns about leveraged balance sheets lessen -- following the $2 billion offering -- you'll see people focus on the fundamentals of the business instead of on sentiment," said Trominoff.

Previously, Sprint said last week that it was in the process of obtaining a new bank loan, a $1 billion secured facility due in nine months. That announcement was met with mixed reviews on Wall Street.

In a report issued prior to Wednesday's offering, Carol Levenson, director of research at Gimme Credit, an independent credit research firm, said: "The good news part of this is obvious -- somebody is willing to lend Sprint a billion dollars under some terms. But the bad news part is the company's unsettling need to go to such lengths merely to borrow $1 billion for nine months."

The greatest threat to the current rally in wireless stocks is likely to be the debt issues, analysts say. "These are very leveraged companies," said Trominoff. "Consequently, they're riskier."

Ex-Lion Tamer

Among other concerns is aggressive pricing by individual companies. On Monday, Cingular Wireless said that it is increasing the number of minutes to its national package plans and eliminating roaming and long-distance charges in the U.S.

"Cingular's pricing news raises the fear that other companies, particularly AT&T (T Quote - Cramer on T - Stock Picks) will have to respond," said Bill Benton, an analyst at William Blair.

Still, Trominoff is optimistic about the prospects for wireless stocks in the near term. "Even if you account for some of the risks," he said, "these stocks are trading below other nongrowth industries."

In 2002, he expects 17 million to 18 million new wireless subscribers in the U.S., a 13% to 14% growth rate.