and... "NXTL: It Is A Scarce Asset" (again by BTAB's wireless telecom
analysts Jeff Hines and Bo Fifer)
"Strong Buy"
HIGHLIGHTS:
-- Nextel shares rose over 12% on Friday (26-Mar) on very heavy volume.
Some recent corporate news would be as follows:
1. Debt ratings raised. Standard & Poor's recently (19-Mar) raised the
ratings on several pieces of Nextel debt (Nextel's corporate credit and
bank loan ratings to "B" from "B-", and the rating on senior unsecured debt
to
"B-" from "CCC+", and Nextel's preferred stock to "CCC" from "CCC-". These
"C" to "B" moves are quite positive in the debt markets, often allowing a
wider potential investor base to own Nextel related debt.
2. Management changes at international unit. Nextel appointed Steve Dussek
as President and COO of Nextel's 99% owned subsidiary Nextel International.
We have noted that Nextel International is one area where the Company has
lagged versus our expectations and view the move of Mr. Dussek (a wireless
veteran, who had been President of Nextel's West Division) to run the
international operations as a positive.
3. GSA contract win. Nextel recently won a government contract to supply
wireless phones to several government agencies (FBI, CIA, etc.).
4. Ericsson/Qualcomm pact highlights 3G. Last week's announcement
regarding Ericsson and Qualcomm should streamline the process of developing
a third generation (3G) wireless platform which incorporates high-speed
data into the mobile voice platform. Advances through 3G technology are
likely to result in greater penetration and higher usage for the wireless
service providers. The announcement firmly highlights what telcos are
looking for in next generation wireless technologies, i.e., additional
capabilities based on data/Internet platforms. In that vein, Motorola's
iDEN technology (what Nextel, Clearnet, et. al.) are currently using, is
well down the path of offering if not 3G, perhaps 2 1/2 G, wireless
services as was evidenced by a recent Nextel / Motorola / Netscape / Cisco
/ Unwired Planet announcement. We would look for both Nextel and Clearnet
to roll out wireless data based services using the new i1000plus
data/Internet capable phone later this year.
-- STOCK PRICE PERFORMANCE: NXTL is up 60% YTD, ahead of our (also strongly
performing) PCS Index (up 43%) and the S&P500 (up 4%).
-- NET-NET: Investors, we believe, are beginning to realize the potential
"center of the universe" position of wireless in the telecommunications
marketplace. While much of the current focus has been on wireless's
potential for carrying voice traffic (and thus providing an alternative at
the local level), future 3G services will include high-speed data/Internet,
video, etc. With a scarcity of wireless equity investments available,
certainly a Western Hemisphere provider like Nextel has pieced together
what is one of the premier footprints in the industry today, in our view.
-- VALUATION: Our 12-month price objective is $42/share, based on our DCF.
We note that we have heavily discounted Nextel's 99% owned subsidiary
Nextel International due to a slow-ramp and uncertain financing plans.
Should Nextel shore up financing at Nextel International and/or increase
market penetration we would likely use a similar discount rate on these
operations, which would imply a $46/share price objective. Stay tuned. |
