DBAB's Hines and Fifer on the wireless repurcussions of this rumored
PCS play:
HIGHLIGHTS:
-- Reports surfaced this morning that MCI WorldCom may be in discussions
to acquire Sprint. Reportedly, WorldCom would offer stock for
Sprint's parent operations (FON) and issue a separate WorldCom
tracking stock for Sprint's PCS operations (PCS).
-- If this scenario were to play out, we believe it would remove one of
the more likely consolidators of US wireless assets (clearly negative
for wireless stocks), but would also remove a potentially significant
competitor. In our opinion, WorldCom needs to address a wireless
solution, one way or the other (clearly positive for the industry).
-- We note that Sprint PCS is currently trading at a significant premium
to its North American PCS comparables by nearly any measure: $217/POP,
$8,744/subscriber, and 11.3x 2000 revenue estimate. The impact on
other PCS stocks, were they to receive Sprint PCS' valuation, would be
significant:
Share Price Implied By Sprint PCS Valuation
11.3x Avg. Implied Avg. Implied
Company $217/POP $8,744/Sub '00 Revs Equity Value Upside
Nextel $121 $88 $123 $111 74%
VoiceStream $94 $62 $60 $72 15%
Clearnet $99 $74 $52 $75 311%
Microcell $101 $73 $39 $71 468%
Source: Company documents, Deutsche Banc Alex Brown estimates.
-- NET-NET: With the U.S. wireless industry boiled down to 5 major
nationwide players, we believe WorldCom's options, relative to a
wireless strategy, are limited. This scarcity would be evident were
WorldCom to acquire Sprint PCS at what would be record valuations for
a PCS company. We are maintaining our ratings and DCF-derived 12-
month price objectives on the other nationwide wireless carriers: NXTL-
STRONG BUY-$80 target, VSTR-STRONG BUY-$80 target, CLNTF-STRONG BUY-
$33 target, MICTF-STRONG BUY-$19 target. |
