BTAB on NXTL: No Sign Of The Fat Lady Yet
Bankers Trust Research/BT Alex. Brown Research
Jeffrey Hines, Bo Fifer
May 06, 1999
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NEXTEL COMMUNICATIONS INC. [NXTL] "STRONG BUY"
No Sign Of The Fat Lady Yet
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Date: 05/06/1999 EPS 1998A 1999E 2000E
Price: 35.0 1Q (1.53) (1.66)A (1.02)
52-Wk Range: 43 - 15 2Q (1.94) (1.49) (0.96)
Ann Dividend: 0.0 3Q (1.56) (1.30) (0.88)
Ann Div Yld: 0.00% 4Q (1.43) (1.17) (0.71)
Mkt Cap (mm): 12,740 FY(Dec.) (6.46) (5.62) (3.57)
3-Yr Growth: FY P/EPS NM NM NM
CY EPS (6.46) (5.62) (3.57)
Est. Changed No CY P/EPS NM NM NM
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HIGHLIGHTS:
-- We believe speculation that MCI WorldCom and Nextel have broken off
speculated merger discussions is just that, speculation. Recently,
reports have surfaced that the two companies had reached an impasse
regarding valuation.
-- THE FAT LADY STILL HASN'T SUNG: We believe that MCI WorldCom still
needs a wireless asset to compete with the likes of AT&T and Sprint,
et al. Nextel, while just one of several alternatives for WorldCom in
the wireless industry, does share a common focus on the business
market.
-- NEXTEL FIRING ON ALL CYLINDERS: There may be other options for
WorldCom, but we believe none are performing as well as Nextel
relative to our five value metrics of penetration gain, ARPU, COA,
churn, and pre-marketing cash flow. We believe April was another
strong month for Nextel in terms of both subscriber additions and
ARPU. We are expecting Nextel to report 2Q 1999 net subscriber
additions of 0.400M (flat versus 2Q 1998) and ARPU of $70/month (vs.
$69/month in 2Q 1998).
-- WHAT'S UP NEXT FOR NEXTEL? We continue to believe there are at least
four significant events are on the near-to-immediate-term horizon for
Nextel:
1. i1000plus: New Internet phone from Motorola with built-in Web browser.
Look for shipments to begin any day with trial wireless packet-based
services expected to launch in 2H 1999 (with circuit switched data expected
shortly).
2. i2000: New world phone from Motorola capable of working with either iDEN
or GSM900 wireless networks. We expect Nextel to roll out Nextel Worldwide
roaming services from U.S. to roughly 130 countries in Europe, South
America and Asia during 2Q-3Q 1999.
3. New phone manufacturers: Nextel has indicated that it is in significant
discussions with potential new handset manufacturers. We expect an
announcement is forthcoming.
4. Spectrum additions: Nextel is currently awaiting regulatory approval for
its purchase of Geotek. We expect that this could add up to 3-4 MHz of
spectrum per market. Also the Company is looking at 5 MHz of so-called
Industrial & Transportation Use SMR spectrum.
-- STOCK PRICE PERFORMANCE: YTD, NXTL is up 52% versus a 41% gain in our
PCS Index and a 10% gain in the S&P 500.
-- VALUATION: Reiterate "strong buy" investment rating on NXTL shares
with 12-month price objectives (based on our DCF) of $47/share. Our
underlying price objective on NXTL is $51/share based on our
discounted cash flow. Current 12-month price target of $47/share
heavily discounts non-fully funded Nextel International operations.
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