NXTL: Highlights From The (Very Bullish) Annual Shareholders' Meeting
Bankers Trust Research/BT Alex. Brown Research
Jeffrey Hines,Bo Fifer
May 11, 1999
----------------------------------------------------------------------
NEXTEL COMMUNICATIONS INC. [NXTL] "STRONG BUY"
Highlights From The (Very Bullish) Annual Shareholders' Meeting
----------------------------------------------------------------------
Date: 05/10/1999 EPS 1998A 1999E 2000E
Price: 37.13 1Q (1.53) (1.66)A (0.86)
52-Wk Range: 43 - 15 2Q (1.94) (1.44) (0.80)
Ann Dividend: 0.0 3Q (1.56) (1.19) (0.72)
Ann Div Yld: 0.00% 4Q (1.43) (1.01) (0.56)
Mkt Cap (mm): 14,147 FY(Dec.) (6.46) (5.30) (2.94)
3-Yr Growth: FY P/EPS NM NM NM
CY EPS (6.46) (5.30) (2.94)
Est. Changed No CY P/EPS NM NM NM
----------------------------------------------------------------------
HIGHLIGHTS:
-- We took the following highlights away from Nextel's annual
shareholders"
meeting this morning (11-May) in Washington, DC. In general we would
characterize the meeting as upbeat (which, coming one day after receiving a
$600 million commitment from Microsoft, should not be too surprising):
-- 1. STRONG 1H START TO 2Q 1999. While still early, 2Q 1999 metrics
are
ahead of 1Q 1999 metrics across the board:
a) SUBSCRIBER GROWTH. The Company indicated that April was a huge
month
for subscriber additions and that May is tracking just as well (in fact the
Company could have sold more phones in April had they been available).
Should the 2H of 2Q 1999 continue as the 1H, then Nextel should be
expected to beat (easily?) their expectations of 350,000-400,000 net
subscriber additions for 2Q99 (our estimate currently stands at 400,000).
b) ARPU GROWTH (yes, growth). So far, ARPU in 2Q99 is tracking either
at
or above 1Q99 levels, which is remarkable given that Nextel posted an
industry-leading $71/month, well above the typical PCS wireless carrier in
North America which recorded an average $48/month. Our current estimate
for 2Q 1999 for Nextel is an ARPU of $69.50/month.
c) CHURN. Appears to be remaining in the low 2% per month level. This
contrasts to the typical PCS wireless carrier in North America who is
recording churn rates between 3-4% per month. The difference? Nextel
subscribers are staying with the Company for 4 years, whereas other PCS
companies are retaining their subscribers for 2-3 years.
-- 2. INTERNET SERVICES. Chairman/CEO Dan Akerson commented that he is
more
bullish about the prospects for Internet-based services today, than he was
about the prospects for DirectConnect when he joined the company three
years ago. Beginning in July-1999, all of Nextel's phones shipped (other
than the i2000) will be Internet enabled. On a demo provided by the
Company, the Internet enabled phone was set up to receive several different
services via the Internet, including:
a) Portfolio: Where the subscriber has set up a portfolio of stock quotes.
b) Calendar: Access to the subscribers corporate calendar.
c) e-mail: Access to the subscribers e-mail account.
d) Weather: Access to one of several weather related pages on the Internet.
e) News: Access to one of several news related pages on the Internet.
f) Bookmarks: Pre-defined Internet pages that the subscriber uses, e.g.,
sports, etc.
In our view, these are certainly only the beginning.
-- 3. MCI WORLDCOM DEAL. Understandably, the Company did not comment in
great detail. However, Chairman Dan Akerson did caution that several of
the stories carried over the last month or so regarding the deal were not
at all accurate. We continue to believe speculation that Nextel was
contemplating an offer from WorldCom for $45 or thereabouts are COMPLETELY
INACCURATE (at least in terms of Nextel being interested at this price).
We believe the Company would not even contemplate a sale at any price
with out at least a "five" as the first figure (based on our DCF).
-- 4. i2000 PHONE: International roaming agreements are NOW in place
with 52
operators in 37 countries (a number which the Company expects to head to
130). Current agreements cover 17 of the 25 largest global markets (based
on population, or POPs). Global roaming on the i2000 dual mode iDEN/GSM
phone is expected later this summer. The only draw back is the first
version of the i2000 will not be Internet enabled (presumably the next
version will).
-- 5. CAPITAL EXPENDITURES ON-TRACK: Depending on growth, the Company
indicated that it expects capital expenditures to be in a range of $1.7 to
$1.8 billion in 1999. Our current estimate is $1.8 billion.
-- 6. DIRECT CONNECT TO BE EXPANDED AND ENHANCED: By late next year,
Nextel
hopes to be offering nationwide DirectConnect services, e.g., the ability
to DirectConnect from Boston to a group member in Los Angeles. Moreover,
as IP voice continues to evolve, the Company will roll-out the capability
to talk to Nextel subscribers via your PC using voice over IP. Wow!
-- 7. STEP-UP, OR STEP-OUT: We don't expect Nextel to sell part of its
capacity or "lease" capacity to another player. In other words, if you're
interested in Nextel, you better be interested in the whole thing.
-- NET-NET: Reiterate "strong buy" with $51/share 12-month price
objective
based on our DCF. Moreover, we suspect that expectations will be rising if
current trends remain on track (and thus, price targets as well). At
current prices the company trades at an enterprise value of $79/POP and
$4,400/SUB (subscriber). While this is in-line with other PCS players, we
note that a Nextel subscriber currently has a significantly higher net
present value due to its higher ARPU and lower churn rates, than the other
players. Despite this, the Company continues to trade at a significant
discount to Sprint PCS, which is currently trading at an enterprise level
of $142/POP and $5,900/SUB. |
