I have read some of the street research since the Q3 report.
Here is a very brief synopsis.
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JP Morgan - Buy rating. YE '98 target $40. Q4 subs - 325,000. Same for Q1 '98. Liked "cost of service" falling. Also liked cost of adds at about $490. Below their estimate of about $540. Est Q4 cost of adds $475. Noted indirect channels are 40% of sales at this point, up from 35%. Apparantly a big factor of lower cost of adds. Several other firms commented on this.
Lehman - Neutral rating. YE '98 target $29. Q4 subs - 370,000. Q1 '98 405,000. 1998 ARPU $67.87. Total 1998 adds incr to 1.6mm from 1.3mm. Galaxy 1H 1998. 35% smaller, incr volume, 2nd line, "scan time improvements". 2H 1998 - "Eagle" - smaller phone still.
Deutsch Morgan Grenfell - Hold rating - Target $22. Q4 subs 340,000. Very concerned about big cap ex in 1997 & 1998. Brazil regs allow biz service but apparantly limit interconnect to 30%
of total. Apparantly about in line w/ estimates.
Pru - Buy rating - Reiterated info indicates best as a commercial use, not retail.
BT Alex Brown - Strong buy rating. Q4 subs - 315,000. ARPU - $68. 1998 adds - 1.2mm
Bear Stearns - Attractive rating
AA Chicago Corp - Buy rating - $34 target.
(P.S.) - My memory is Montgomery has a $48 price target. Can anyone confirm?
Most of the research repeated stuff from the press release and 10-Q, to which we all have access so I didn't use up bytes to repeat. Also, most expressed concerned about higher than expected cap ex. Cap ex was $477mm. Est was about $225mm-$250mm.
My comment - Since valuation is done as DCF, the higher than expected cap ex really hurts the valuation model. Also, I think this raises their concern about future financing needs, debt or equity. Between the lines, I think they don't really believe the high ARPU numbers are anywhere near sustainable. Combined w/ no big change in 1998 subs for most of them, that understandably hurts the math of a DCF based analysis. Keep in mind, DCF is just a math exercise totally based on assumptions. Garbage in - garbage out.
Also, I think the release about retail users right before the earnings has them concerned. Conceptually, if NXTL has the demand for high ARPU users, why pimp themselves to low ARPU retail and use up capacity, unless you can direct the use to off peak hours? I don't necessarily
agree with this is a large concern but I think they have it nonetheless.
Bottom line - my prediction of a $35 YE 1997 price looks shaky unless Street opinion changes. Essentially, we "need" them near term if we want the stock to do better. Long term their opinion doesn't matter and neither does ours as the facts will out. I think their concerns are overblown but my opinion of most Street anlaysts has been previously posted.
Headed for an early nap,
Gluttonous Bub |
