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

To: SteveG who wrote (9150)	5/12/1999 1:31:00 AM
From: SteveG	Read Replies (1) \| Respond to of 10227

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.

To: SteveG who wrote (9150)	5/12/1999 1:39:00 AM
From: SteveG	Respond to of 10227

NXTL: Microsoft Invests $600 Million In NXTL To Develop Internet Services CREDIT SUISSE FIRST BOSTON CORPORATION Equity Research Americas U.S./Wireless Telecommunications Services Cynthia M. Motz, CFA Robert J. Hordon BUY LARGE CAP Nextel Communications (NXTL) Microsoft makes $600 million equity investment in Nextel; the two companies agree to work together to offer wireless Internet services. Summary Microsoft committed to pay $36 per share for an approximate 5% stake in Nextel; the funds will be used to develop and deploy wireless data services. Nextel and Microsoft will co- brand the service. Nextel plans to use Microsoft's MSN portal as a "web-computing " platform for its Nextel Online offering, which will provide subscribers with an array of Internet services, such as email and information services. We view Microsoft as an excellent partner for Nextel as it pursues an aggressive wireless data strategy. We believe the Microsoft affiliation a) enhances Nextel's ability to penetrate a broader market, b) further validates the Nextel technology, and c) makes Nextel more attractive as a merger partner. Price Target Mkt.Value 52-Week 5/10/991 (12mo.) Div. Yield (MM) Price Range $36.94 $41 NA NA $10,771.7 $42.50-15.38 Annual Prev. Abs. Rel. EV/ EBITDA/ EPS EPS P/E P/E EBITDA Share2 12/99E $(4.80) NM NM 36.4X $1.68 12/98A $(5.80) NM NM NM $(0.79) 12/97A $(4.78) NM NM NM $(1.65) March June Sept. Dec. FY End 1999E $(1.51) $(1.33)$(1.13) $(0.83) Dec.31 1998A $(1.53) $(1.45)$(1.39) $(1.43) 1997A $(0.93) $(1.08)$(1.26) $(1.48) ROIC (12/99) (3.5)% Total Debt (3/98)3 $8.0B Book Value/Share (3/98) $(1.18) WACC (12/99) 9.2% Debt/Total Capital (3/98) 104% Common Shares 291.6 EP Trend5 Positive Est. 5-Yr. EPS Growth4 NA Est. 5-Yr. Div. Growth NA 1On 5/10/99 DJIA closed at 11007.3 and S&P 500 at 1340.3. 2Refers to total consolidated EBITDA per share. 3Long term debt. 4Although earnings are negative until 2001, thereafter company shows 50% CAGR through 2007. 3Economic profit trend. NM=not meaningful. With licenses for over 270 million POPs throughout the United States and approximately 225 million proportionate POPs in emerging markets worldwide, Nextel is able to provide customers with an integrated wireless service that allows for digital cellular, paging and voice dispatch in a single handset. Investment Summary Nextel and Microsoft announced today that Microsoft has committed to make a $600 million equity investment in Nextel and that the two companies are working together to provide an array of wireless Internet services to Nextel subscribers. Under the terms of the agreement, Microsoft will pay $36 per share for Nextel stock, subject to certain transfer and standstill restrictions. The funds will be used by Nextel to develop and deploy wireless Internet services in the United States and abroad. We believe the price paid by Microsoft is indicative of the fact that Microsoft is only receiving a very small stake ( less than 5%) of the company, and will not have any representation on the board of directors. The agreement is not exclusive; both Nextel and Microsoft can work with other partners, but one of the key things to note about Nextel's data strategy is that every single handset beginning year end will be data/internet ready. Every phone has its own IP address, and will be capable of connecting to the MSN portal . This will become standard even on future versions of the world phone that will come out in the years to come. Nextel plans to use Microsoft's MSN portal as a "web-computing " platform for its Nextel Online offering. Nextel Online, which is a website that Nextel subscribers will be able to access using Internet-capable handsets, offers three major sets of services. First, Nextel Online will serve as a web- based customer care center. Nextel customers will be able to use Nextel Online to check their account balances, pay bills and obtain information about Nextel products and services. This is expected to improve customer service and take costs out of the business. Second, Nextel Online will offer an integrated set of customized Internet services, including email, calendar, address book and other Web-based content services. Third, Nextel Online will serve as a platform for communication among members of Nextel Business Networks, a service that brings together communities of interest such as workers in a particular industry. Approximately 33% of Nextel subscribers were participants in Nextel Business Networks as of the end of first quarter 1999. Nextel's Developers Program has enlisted more than 90 organizations to develop applications for the various segments within Nextel Business Networks. During the conference call, Nextel affirmed its plans to have micro-browser technology installed in all handsets by July of 1999 and to launch data services in six cities by the end of the year, with a full nationwide launch expected in 2000. We view the announcement as a very positive development for Nextel, which is aggressively attempting to become a leader among mobile telephony players as a provider of wireless data services, for the following reasons: The investment by Microsoft represents an endorsement of the iDEN technology upon which Nextel's network is based, particularly in terms of its potential as a data network. Arguably the most powerful software company in the world, Microsoft is in our view the ideal partner to help Nextel develop software and applications for its data services. Like dispatch, wireless data/Internet services have the potential to become another key factor that differentiates Nextel from its cellular and PCS competitors. Microsoft brings a great deal of credibility to Nextel in terms of marketing wireless data services. Given the prevalence of Microsoft software in the business world, Nextel has another point of access to its target market of business customers. And while they say it is not their present focus, it opens up a big door into the consumer market if Nextel desires access there as well. Companies mentioned in this report: (Closing prices are as of May 10, 1999) Microsoft (MSFT, $79.69, Strong Buy)* * Followed by a different CSFB analyst.