NXTL: FINE-TUNE MODEL TO INCLUDE RECENTLY FILED 10-K--STRONG BUY
Bankers Trust Research/BT Alex. Brown Research
Jeffrey Hines,Bo Fifer
April 06, 1999
HIGHLIGHTS:
-- We have fine tuned our expectations for Nextel post a review of their
recently filed 10-K. We have made no major changes. Based on our DCF our
12-month price objective is $44/share. This target includes a heavily
discounted international operation. 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 $48/share
price objective. Stay tuned.
-- FORWARD EXPECTATIONS: WE HAVE MADE NO MAJOR CHANGES although those
paying close attention will see slightly higher expectations for average
revenue per unit (ARPU), which has had the effect of slightly increasing
our 2000 estimates of cash flow. However, our 1999 estimate of cash flow
has slightly decreased as we've included roughly $75 million of Y2K/other
increased expenses. We also note that Nextel International has increased
its ownership in a wireless venture in the Philippines to 38% from 30%, and
that Nextel domestically has "cleaned-up" (i.e., turned-off) approximately
40,000 non-paying/non-active subscribers.
Headline U.S. Estimates 1998A 1999E 2000E
Revenues (MM) $1,812 $3,022 $4,101
Cash flow (MM) ($ 99) $ 635 $1,425
ARPU ($/month) $69 $69 $65
Subscribers (MM) 2.750 4.350 6.050
Net Additions (MM) 1.519 1.600 1.700
Penetration 1.0% 1.8% 2.5%
Penetration Gain 0.5% 0.8% 0.7%
Source: BT Alex. Brown estimates, Company documents.
-- STOCK PRICE PERFORMANCE: NXTL is up 68% YTD, ahead of our PCS Index (up
53%) and the S&P500 (up 7%).
-- 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 should 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. |
