Subject: [NEXTEL-1] Williams Capital Group On Nextel

From: Marcel <[email-masked]>
Date: Fri, 25 Apr 2003 11:36:49 -0400

24-Apr-03 Williams Capital Group (Rashad Barajakly  NXTL - Reiterate Buy, Raise Price
Target to $16   The Williams Capital Group, L.P.  Ticker: NXTL  Rashad Barajakly (212)
830-4568  Reiterate Buy, Raise Price Target to $16  April 24, 2003
********************************************************************* ***********
Ticker: NXTL  WCG
Rating: Buy 2002 2003 2004

WCG Risk Category: High

P/E 54.8 X 14.0 X 11.7 X

Price: $13.69 EV/EBITDA 7.7 X 6.3 X 5.5 X

Market Cap ($MM): $14,333  Target Price: $16.00  10-yr

EBITDA Growth: 7.0%  Enterprise Value ($MM): $24,438

Debt/2003E EBITDA: 3.1x
Q102 Q202 Q302 Q402 Q103 Q203 Q303 Q403
EPS ($0.35)A ($0.05)A $0.14A $0.19A $0.20A $0.24 $0.29 $0.26  Old $0.16 $0.21 $0.24 $0.20
EBITDA $586A $816A $878A $886A $906 $952 $1,014 $988  Old $904 $965 $1,001 $969   FY2002
FY2003 FY2004  EPS $0.25A $0.98 $1.17  Old $0.81 $1.00  EBITDA $3,166A $3,860 $4,407  Old
$3,839 $4,407  *********************************************************************
***********  We reiterate our Buy on NXTL at a price of $13.67 and raise our price target
to  $16 from $15.

NXTL's ability to execute its strategy and its consistency in  meeting expectations have
been remarkable.

The next catalysts for the stock in  our opinion are a positive spectrum-swap ruling in
favor of NXTL, its continuing  to meet or exceed expectations, and the rollout of
nationwide direct connect.  Our higher target results from our lowering the discount rate
in our DCF model  to 12% as we perceive the risks inherent in NXTL to continue to decline.

NXTL reaffirmed its 2003 guidance. NXTL expects EBITDA in 2003 to be at least  $3.8
billion on net adds of over 1.7 million. The company expects less than  $1.8 billion in
capex spending in 2003, free cash flow of at least $500 million,  and sees the floor for
2003 earnings per share to be $0.75.

We are inching higher our EBITDA estimate for 2003 to $3.86 billion from $3.84  billion,
suggesting 22% growth from 2002. We are upping our 2003E net adds to  1.78 million
subscribers from 1.71 million to reflect the higher than expected  adds in the first
quarter. We have slightly raised 2003E revenues as the impact  of higher projected net
adds and equipment revenues offsets our slightly  lowered estimate for ARPU.

We have also adjusted our operating expense  estimate. Our 2004E EBITDA estimate is
unchanged at $4.4 billion.   We are upping 2003E EPS to $0.98 from $0.81 and that for 2004
to $1.17 from  $1.00. The change to our 2003 estimate primarily reflects lower interest
expense and to a lesser extent better EBITDA.

NXTL posted solid first quarter results April 23 that were for the most part in  line with
expectations. Despite intense competition, NXTL posted net subscriber  additions that
significantly exceeded our expectations. While ARPU was  slightly weaker than expected,
the decline was still within the range of 2% to  3% that we view as reasonable. Results
continued to benefit from operating  efficiency gains and greater economies of scale.

EBITDA during the quarter was $906 million, virtually in line with our estimate.  Net adds
were 480,000, higher than our estimate of 425,000. Churn was also  better by 20 basis
points at 1.9%. ARPU was a dollar weaker at $67, as a result  of lower overage due to
typical seasonal trend, continued penetration of the  government segment and a lack of MOU
growth.   Despite aggressive promotions by competitors, NXTL's differentiated and unique
product offerings, attractive price plans, and quality of service have enabled  it to
capture higher market share than expected.

The risk of another  push-to-talk product diminishing NXTL's competitive advantage near-
term is  minimal, in our opinion. Latency issues with competing PTT products are
improving, but are still higher than that of NXTL. NXTL is also rolling out  nationwide
direct connect which coupled with priority access for the government  and public safety
segments could enable NXTL to keep its edge in that segment.

De-leveraging activity continues. NXTL retired $568 million of debt and  preferred
securities. This brings the total retired debt and preferred  securities over the past 12
months to roughly $3.8 billion.   NXTL reported earnings of $208 million, or $0.20 per
share, for the first  quarter. We were looking for EPS of $0.16. The better than expected
EPS in the  first quarter is attributed primarily to lower interest expense.
********************************************************************* ***********

We reiterate our Buy rating and are raising our price target to $16 from $15.00

.  At a time when the national carriers continue to jockey for market share, NXTL  is
capturing market share through its differentiated product offerings and high  network
quality. The company's differentiation has enabled it to generate the  highest ARPU and
maintain the lowest churn among the national carriers.

Additionally, Nextel's management has demonstrated time and again its ability to  manage
the business in a difficult environment. NXTL is achieving targets  sooner than expected
and growing profitability at a faster pace than expected.  Our price target is derived
using our DCF model and WACC of 12%. We believe  upside potential to our revised price
target is still possible.

The greatest risk to the NXTL stock, in our opinion, is the launch of a  push-to-talk
service by a competitor later this year. No doubt, direct connect  has a lot to do with
NXTL's success and ability to grow market share. Given its  success, several operators are
expected to launch a similar product during the  second half of this year.

While latency issues are likely to come down to an  adequate level for commercialization,
based on what we have seen and tested  NXTL's product remains superior. NXTL is deploying
nationwide direct connect in  the second half of the year and the company has acquired
extensive experience  in marketing, pricing, and selling the service, which is likely to
take others  some time to replicate. Additionally, NXTL PTT users have grown accustomed to
a  high quality PTT service that will take other carriers time to match. On the  negative
side for NXTL, competing PTT products are expected to offer  inter-carrier service which
will appeal to consumers.

NXTL's increased penetration of the "high value individual" segment is not a  cause for
concern. At the end of the first quarter, roughly 27% of the base  were classified as high
value individual subscribers. High value individual  subs accounted for the majority of Q1
03 net adds or roughly 241,000. While  this segment increases the risk of capturing lower
quality subs, so far, NXTL  seems to have a solid grip on the segment. The company
maintains one of the  toughest credit scoring policies, evident by its ability to cut bad
debt expense  at a faster than expected rate and its remarkably low churn. Bad debt
expense  as percent of revenue is currently 2.4% and churn is 1.9%, among the lowest in
the industry. The high value individual segment currently is producing average  ARPU,
usage, and churn comparable to the general business segment. This is  unlike the
government segment, the second fastest growing category, which  carries lower than average
churn rates but also generates lower than average  ARPU.

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