NXTL: UPBEAT 1Q 1999 RESULTS--STRONG BUY
Bankers Trust Research/BT Alex. Brown Research
Jeffrey Hines,Bo Fifer
April 19, 1999
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NEXTEL COMMUNICATIONS INC. [NXTL] "STRONG BUY"
Upbeat 1Q 1999 Results
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Date: 04/19/1999 EPS 1998A 1999E 2000E
Price: 38.0 1Q (1.53) (1.66)A (0.91)
52-Wk Range: 43 - 15 2Q (1.94) (1.34) (0.83)
Ann Dividend: 0.0 3Q (1.56) (1.11) (0.75)
Ann Div Yld: 0.00% 4Q (1.43) (0.98) (0.57)
Mkt Cap (mm): 13,832 FY(Dec.) (6.46) (5.09) (3.06)
3-Yr Growth: FY P/EPS NM NM NM
CY EPS (6.46) (5.09) (3.06)
Est. Changed Yes CY P/EPS NM NM NM
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HIGHLIGHTS:
--Nextel Communications reported very solid 1Q 1999 results, in our view,
Monday (18-Apr.) prior to the market's open and then held what we would
describer as an upbeat conference call with investors.
--FORWARD OUTLOOK: We have kept our "high-end" expectations largely intact
and, in fact, have even a higher degree in confidence regarding these
expectations:
U.S. FINANCIAL HIGHLIGHTS 1998A 1999E 2000E
Revenue (MM) $1,812 $3,020 $4,103
Cash flow (MM) ($ 99) $ 627 $1,424
Net additions (MM) 1.467 1.615 1.700
Total subscribers (MM) 2.738 4.353 6.053
ARPU ($/month) $68.70 $69.25 $64.75
Churn (%/month) 1.78% 2.08% 2.00%
Source: BT Alex. Brown Estimates, Company documents.
--NET-NET: We would continue to be a buyer of NXTL shares. Very scarce
asset. Underlying price objective is $49/share based on our discounted
cash flow. Current 12-month price target of $45/share heavily discounts
non-fully funded Nextel International operations.
DETAILS:
Nextel Communications reported very solid 1Q 1999 results, in our view,
Monday (18-Apr.) prior to the market's open and then held what we would
describer as an upbeat conference call with investors:
1Q 1999 HIGHLIGHTS 1Q99Actual 1Q99Est. 1Q98Actual
Net additions 415,000 400,000 371,000
ARPU (avg. rev. per sub) $71/mo $69.50/mo $66.30/mo
Churn 2.0% 2.1% 1.75%
Revenue NA $635 MM $321 MM
Cash flow $82 MM $75 MM ($95 MM)
Source: BT Alex. Brown, Company documents.
Notables from the conference call included:
1) Average revenue per unit (ARPU), which was $71/month in 1Q 1999, was
actually higher than this (higher than expected) number in the month of
March. Nextel indicated that with the launch of the new i1000 phone from
Motorola (launched 4Q 1998), that it has seen increasingly positive
response from new segments (e.g., more "white collar," less traditional
blue/gray collar subscriber) to the product line and that subscribers are
generating even a higher degree of "cellular/PCS" traffic versus "direct
connect (or digital dispatch)" traffic. Nextel indicated that the
percentage of cellular/PCS traffic has increased to 46% in the quarter
versus 43% in 4Q 1998. Also, average minutes of use (MOU) per subscriber
remain at a very healthy 400 per month.
2) Nextel expects to be rolling out wireless circuit switch data services
within next 90 days (nationwide), followed by wireless packet data services
in 6 cities during the 2H 1999 (expected to go nationwide during 1Q 2000).
Motorola indicated that the i1000 plus phone, which comes with an Internet
browser built into the phone, should begin shipping in quantities during 2Q
1999. We expect that Nextel will be the first company in the U.S. to roll
out a nationwide service based on Internet-enabled phones--another
milestone for the Company in the U.S. market.
3) Nextel is far along in discussions with second source(s) for handsets.
Stay tuned. Perhaps one of the risks to the story continues to be Nextel,
Clearnet, et. al., reliance on a single source for the iDEN equipment.
While this has proven to be not significant over the past several years, as
Motorola has continued to position iDEN as perhaps the most functional
technology in the market place, certainly the addition of a second source
would keep the competitive pressures "on."
4) The Company is hopeful that it will receive regulatory approval to
proceed with the acquisition of Geotek. We expect that this could add up
to 3-4 MHz of spectrum on top of Nextel's current 15 MHz position per
market. Also, the Company is looking at 5 MHz of so-called Industrial &
Transportation Use "SMR" spectrum. The net-net is that Nextel believes
that their current spectrum position is fine, and that there are plenty of
avenues to potentially augmenting this position which would leave Nextel
well positioned for future data/3G applications.
5) Nextel gave no comment regarding any M&A discussions which have been
largely speculated as of late. We continue to believe that others are more
interested in Nextel than perhaps Nextel is in others (i.e., Company not
likely to sell cheaply). Wireless and Nextel remain scarce assets.
6) Nextel International added roughly 40,000 new subscribers in the
quarter. This number is less than the 49,000 added in 4Q 1998 and
continues to represent an under whelming penetration (to put it mildly) of
the international markets. Nextel recently 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.
NET-NET
Results are very solid, in our opinion, and Nextel should remain at the top
of the peer group in terms of underlying value metrics. |
