Nextel Communications (NXTL; $131 3/4; D-1-1-9)
Nextel Online?Available in Selected Markets (Bulletin Available)
00E d$3.09; 01E d$2.07; Market Cap.: $46,771mn
Last week, Nextel (NXTL, D-1-1-9, $131 3/4 ) launched Nextel Online in several markets,
including the New York City metropolitan area, Los Angeles, Chicago and San
Francisco, among others.
The company plans to complete its nationwide launch by mid-year 2000E, at which point
we estimate that approximately 38% of the base will have WAP-enabled phones.
We continue to maintain our intermediate-term Buy rating on NXTL shares.
Nextel Online is a packet data service operating at average rates of 14.4 kbps to 19.6
kbps. Prices for the service range from $14.95 incremental to a voice plan to $39.95
incremental for the eDispatch service offering.
At the end of 1999, about 1.1 million of NXTL?s subscribers already had web-ready
phones, and virtually all of the phones that NXTL is selling are WAP-enabled.
We think that this could mean a potentially easy transition for NXTL's subscribers from
just voice, to voice plus web service.
(L. Mutschler/N. Lajoie)
Compaq Computer Corp (CPQ; $29 1/4; B-3-2-7)
Lowering 1Q/CY 2000 Sales Estimates (Bulletin Available)
00E $1.00; 01E $1.35; Market Cap.: $51,438mn
We are reducing our 1Q00 revenue estimate for Compaq from $9.930 billion to $9.605
billion which represents 2.0% yr/yr growth for the quarter.
We believe that during the first quarter, Compaq suffered from both weak corporate
demands in January as well as a more aggressive pricing posture from Dell. Though
bidding activity picked up by mid-February, it is less clear to us how much business
actually closed by the end of March given the length of the sales cycle.
We are also reducing our full year revenue estimate to $42.257 from $42.582 to reflect
this change in our first quarter estimate. This represents yr/yr growth of 9.7%, versus our
previous estimate of 10.5%. We are not changing our Q2-Q4 revenue estimates.
We are leaving our 1Q00 $0.16 EPS estimate and our FY00 $1.00 EPS estimate intact.
Clearly, Compaq?s earnings are less easy to predict given that cost cutting remains one of
the primary drivers of the bottom-line.
We are maintaining our Neutral rating on Compaq for now although we believe it could
prove to be an attractive investment opportunity in the second half of the year.
(S. Fortuna/M. Hillmeyer)
Bulletin
United States
11 April 2000
Morning Notes Summary
Merrill Lynch & Co.
Global Securities Research & Economics Group
Global Fundamental Equity Research Department
RC#11210206
Morning Notes Summary ? 11 April 2000
2
Retailing - Broadlines
WEB WATCH (Bulletin Available)
Although late to the party, we expect bricks and
mortar retailers to ultimately develop large size e-commerce
businesses while the ?early mover? sites
remain relatively small in scope
The advantages that bricks and mortar e-tailers enjoy
are overwhelming and include: 1) buying, 2)
marketing cost synergies, 3) store sites used as
showroom and return facilities, 4) in-store kiosks and
5) established brands
Broadline retailers are rapidly developing their web
sties, but are still well behind the leader in overall
excellence, Amazon. Based on hundreds of hours of
web watching, we believe the best overall sites among
broadline retailers are Nordstrom, Sears, and
Federated
We expect Saks, May, and possibly Kohl?s to add e-commerce
over the next year
We do not expect the dollar stores such as Dollar
General, Family Dollar, and 99½ Only Stores to sell
products over the web because low priced
consumables are generally not suitable products for e-commerce
(D. Barry/S. Feigenbaum-Turnoff)
Quantitative Strategy Update
Morning Call Notes (Bulletin Available)
Dollar & Technology Stocks
We have just completed a study showing the very
strong relationship between countries' Technology and
Telecom weightings and the performance of their
currencies versus the U.S. dollar. Among the G-7
countries, the correlation between year-to-date
currency performance and Tech/Telecom weight
within the domestic stock market is 95%. Using a
bigger sample of countries (24), the correlation was
about 73%. In other words, the larger the
Tech/Telecom weight, the stronger the currency so far
this year.
We have suggested that the Technology bubble has
been sucking capital away from other industries, it
now appears to be sucking capital away from other
countries.
This is not related to fundamentals. For example,
estimate revisions in Australia are among the strongest
in the world, but Tech and Telecom comprise only
23% of the market capitalization. The result is that the
Australian dollar is down more than 10% so far this
year versus the US dollar.
Bottom-Up" Sector Forecasts Still Very
Optimistic
We have suggested that one reason the Technology
performance can be classified as a bubble is that it is
not the only growth story around. Contrary to popular
belief, lots of companies are growing.
The earnings growth rate of the Equal-weighted S&P
500 and the actual S&P 500 were identical in the
fourth quarter (28%).
Merrill Lynch analysts expect nine of twelve economic
sectors to grow earnings in excess of 15% in both
2000 and 2001. They expect six sectors to grow
earnings in excess of 20% in 2000, and four sectors to
do so in 2001. Meanwhile, they expect the earnings
growth rate of the Technology sector to be roughly
halved between 1999 and 2001 (54% to 28%).
At the end of March, one could pay 73x earnings and
22x book value for the Technology sector's
decelerating earnings growth. Or, one could get
accelerating earnings growth in the Energy sector for
31x earnings and 4x book, or in the Basic Industrial
sector for 16x earnings and 3x book value.
(R. Bernstein)
[NXTL] The securities of the company are not listed but trade over-the-counter in the United States. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from
registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). This report has been issued and approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is
regulated by SFA, and has been considered and issued in Australia by Merrill Lynch Equities (Australia) Limited (ACN 006 276 795), a licensed securities dealer under the Australian Corporations Law. The information herein was
obtained from various sources; we do not guarantee its accuracy or completeness. Additional information available.
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