Subject: [NEXTEL-1] 16-Oct-03 Thomas Weisel Partners LLC On Nextel

From: [email-masked]
Date: Wed, 22 Oct 2003 12:53:31 -0400

16-Oct-03 Thomas Weisel Partners LLC (Zachar, CFA,Ned P. 
NXTL: No Quit In Nextel'S Clubhouse, Reiterate Outperform

Key Data
Price$22.12
52-Week Range:$8-$22
Market Cap.(mn):$23,226.0
Shares Out.(mn):1050.0
Avg Daily Vol.:17,908,127
Fiscal Year End:December
Sector Rating:MW
Stock Rating:O

Debt/Total Capital:71%
Price/TTM Sales:2.3x
Net Cash/Share:NM
Book Value/Share:$4.52
Price/Book Value:4.9x
Secular Growth:25%
Price Target:NE

FY           2002      2003       2003 Prv   2004       2004 Prv
EPS
Q1           ($0.65)A  $0.21A     $0.21A     NE         NE
Q2           $0.39A    $0.27A     $0.27A     NE         NE
Q3           $0.58A    $0.33A     $0.28E     NE         NE
Q4           $1.49A    $0.40E     $0.34E     NE         NE
Year         $1.81A    $1.21E     $1.10E     $1.71E     $1.48E
P/E          12.22x    18.28x                12.94x

Revenue(mn)
Q1           $1957.1A  $2371.0A   $2371.0A   NE         NE
Q2           $2154.0A  $2556.0A   $2556.0A   NE         NE
Q3           $2279.0A  $2887.0A   $2589.0E   NE         NE
Q4           $2331.0A  $2881.0E   $2653.6E   NE         NE
Year         $8721.1A  $10695.0E  $10169.6E  $11941.2E  $11184.2E
TEV/Sales    3.5x      2.9x                  2.6x

Note: Any price target displayed in the data box above represents either a
specific price target or the midpoint of a range.

Executive Summary

* The Results - Nextel Communications reported strong third quarter earnings
results this morning that exceeded our expectations.  The company added 646,000
new subscribers during the quarter, substantially ahead of our estimated 440,000
and up from 591,000 in 2Q03.  ARPU of $71 and churn of 1.4% were also better than
our expectations of $68 and 1.75%, respectively, and up from Q2 ARPU of $69 and
churn of 1.6%.  Nextel's lifetime revenue per subscriber in the third quarter was
$5,071, one of the highest in the industry.

* Nextel reported 3Q03 revenue and EBITDA of $2.89 billion and $1.13 billion,
above our estimates of $2.59 billion and $1.03 billion, respectively.  Total
revenues grew 12.9% sequentially and 26.7% year over year.  EBITDA growth for the
quarter was 12.5% sequentially and 28.6% versus the same quarter a year ago. 
Nextel's third quarter EBITDA margin was 39.1%, versus 39.3% in 2Q03.

The company's service revenue margin grew from 42.1% in 2Q03 to 43.4% in the third
quarter.  EPS for the quarter was $0.33, including debt retirement charges and was
above our estimate of $0.28 and up from $0.27 in 2Q03.

* The Numbers - In light of Nextel's strong third quarter and improved positive
outlook for the full-year 2003, we are making the following revisions to our
estimates.  We expect Nextel to add just over 2.21 million new subscribers in
2003, up slightly from our previous estimate of 1.95 million.  Our ARPU for the
full year is higher at $69.00 versus our previous estimate of $67.75.  We are
lowering our churn estimate for 2003 from 1.8% to approximately 1.6%.  We now look
for total revenues in 2003 of $10.69 billion, versus our previous estimate of
$10.17 billion.  We are raising our EBITDA projection from $3.95 billion to $4.18
billion and we are raising our 2003 EPS estimate from $1.10 to $1.21 based on the
Q3 beat and increased guidance.  The company increased 2003 FCF guidance to $1.0
billion (or more) from $600 million (after debt buybacks and spectrum purchases),
2003 EPS guidance to $1.15 from $1.00, 2003 EBITDA guidance to $4.1 billion from
$3.9 billion, and 2003 net add guidance to 2.2 million from 1.9 million.

* During the third quarter, Nextel retired approximately $2.2 billion in principal
amount of its outstanding debt and redeemable preferred stock in exchange for
approximately $1.76 billion in cash and 30 million shares of common stock valued
at $584 million.  Nextel raised approximately $2.0 billion through the issuance of
7.375% Senior Notes and $500 million from equity issued under the direct stock
purchase plan during Q3.  Nextel announced in the third quarter that it expects to
redeem another $1.3 billion of its indebtedness during 4Q03.  At quarter end,
Nextel had cash and cash equivalents of $3.56 billion and an additional $1.2
billion in available financing.

* Events - In our view, the most positive event/events that will take place for
Nextel over the next few quarters will be the continued restructuring of the
balance sheet to term out existing debt and reduce overall borrowing costs.  Based
upon this quarters results and the company's revised guidance, it appears that the
operating results will continue to be solid for the remainder of 2003.

* Valuation -- Nextel Communications is trading at 8.4x 2003 estimated EBITDA and
7.6x 2004 estimated EBITDA, a modest premium to both AT&T Wireless and Sprint
PCS.  On a P/E basis, Nextel (EPS expected five-year CAGR is 15.8% beginning 2003)
is trading at 18.3x our 2003 EPS estimate of $1.21 and 13.0x our 2004 EPS estimate
of $1.71 (absent any change in GAAP tax assumptions).

Our five-year DCF analysis suggests a current fair value for NXTL of about $30,
using a WACC of 10% and a 7.0x terminal multiple.

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