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Technology Stocks : NEXTEL -- Ignore unavailable to you. Want to Upgrade?

To: Kevin F. Spalding who wrote (9281)	7/16/1999 1:17:00 AM
From: SteveG	Read Replies (1) \| Respond to of 10227

NXTL: Increasing Expectations After Superb Second Quarter Results Deutsche Banc Alex. Brown - US Equities Jeffrey L. Hines,Bo Fifer July 15, 1999 --------------------------------------------------------------------------- ---- NEXTEL COMMUNICATIONS INC. [NXTL] "STRONG BUY" Increasing Expectations After Superb Second Quarter Results --------------------------------------------------------------------------- ---- Date: 07/15/1999 EPS 1998A 1999E 2000E Price: 54.5 1Q (1.53) (1.66) (0.81) 52-Wk Range: 55 - 15 2Q (1.94) (1.04)A (0.75) Ann Dividend: 0.0 3Q (1.56) (1.07) (0.61) Ann Div Yld: 0.00% 4Q (1.43) (0.96) (0.49) Mkt Cap (mm): 21,473 FY(Dec.) (6.46) (4.73) (2.66) 3-Yr Growth: FY P/EPS NM NM NM CY EPS (6.46) (4.73) (2.66) Est. Changed Yes CY P/EPS NM NM NM --------------------------------------------------------------------------- ---- Industry: COMMUNICATIONS Shares Outstanding(Mil.): 394.0 Return On Equity (1998) : 0.0% --------------------------------------------------------------------------- ---- HIGHLIGHTS: Nextel 2Q99 results were reported on Thursday (15-July) before the open and better than expected across the board. We are increasing our expectations and our 12-month price objective, based on our DCF, has increased to $65/share form $55/share. 2Q 1999 HIGHLIGHTS: The results will likely keep Nextel operating at the head of the class with impressive increases in net subscriber additions and average revenue per unit. Metric 2Q 1999 Est. 2Q 1999A 1Q 1999A -------------------------------------------------------------------- Net Sub Adds 0.415M 0.440M 0.403M ARPU $70.50/month $74/month $71/month U.S.EBITDA $125M $155M $82M Consolidated EBITDA $82M $109M $36M ARPU=Average revenue per unit per month Source: Deutsche Banc Alex. Brown The fact that ARPU's have risen from $66/month in 1Q 1998 to $74/month in 2Q 1999 is perhaps the most noteworthy point of 2Q. Rising ARPU at Nextel is noteworthy since: a) Rising ARPU is bucking the wireless industry trend and this is the 5th consecutive quarter of rising ARPU at Nextel. b) Rising ARPU is reflective of a continuing increase of what are already industry-leading minutes (2Q was at 425 minutes per month per subscriber for Nextel). c) The rising ARPU is happening before what we have estimated will be potentially significant new drivers of incremental revenues/minutes with Nextel's Worldwide Service (scheduled for later this summer) and Nextel Online / MSN scheduled for 2H 1999. We do note that Nextel's current one- way messaging service generated 5.7 M messages in 2Q versus 3.4 M in 1Q, a fairly impressive feat in its own right. WHITE COLLAR MARKET PENETRATION ON THE UPSWING: Nextel has used the new i1000 and i1000plus phones to penetrate Corporate ("white collar") accounts and now boasts 210 of the Fortune 500 as clients. Noteworthy feat, in our view, given Wall Street's perception of Nextel being largely a "blue collar" seller of wireless services. The i500plus (also Internet enabled) should be available form Motorola shortly. The penetration of this market is likely reflective of the fact that Nextel's "cellular" minutes now account for 48% of traffic. CEO STEPPING DOWN TO JOIN McCAW: Lastly, it is noted that Dan Akerson (Chairman & CEO) was stepping down as CEO and joining Craig McCaw (Nextel's largest shareholder) as co-Chairman at Eagle River (McCaw's investment vehicle in Nextel and other ventures). We do not expect Nextel to miss a beat, as Tim Donohue (current Nextel President and COO) will step into the CEO position as well. NET-NET: Great quarterly result as Nextel will likely remain at the top of our PCS value charts. Quite frankly, the results are surprising as the Company has not yet even rolled out two new series services (Nextel Worldwide and Nextel Online / MSN) which we expect could be even more significant drivers of revenue growth. *VALUATION: Based on our DCF, our 12-month piece objective is now $65/share, up from our previous estimate of $55/share. The new target is reflective of the better that expected 2Q, but mainly from higher expectations for subscriber growth and ARPU going forward. We note that at current prices Nextel's enterprise valuer per POP (population) and per SUB (Subscriber) is $105/POP and $5,747/SUB. These values are still well below Sprint PCS (the other national, public PCS entity) which is trading at $165/POP and $6,899/SUB and is not expected to show sequential improvements in 2Q results as Nextel did.