Monday, October 25, 2004

Reston wireless communications company Nextel Communications Inc.’s strong subscriber growth helped push up recent earnings that analysts said were slightly better than expected.

Nextel last week said for the third quarter ended Sept. 30 the company earned $586 million (53 cents per share), up 69 percent from last year’s quarter at $346 million (33 cents).

Sales also surged 18 percent to $3.4 billion from $2.89 billion a year earlier, which the company attributed to its prepaid service Boost Mobile, government contracts and overall higher demand.

Nextel added 550,000 subscribers, 195,000 of those from Boost Mobile, during the quarter, reaching 15.3 million total users. The company’s customers spend on average $69 a month for calling plans.

Nextel lost fewer customers during the quarter, with a “churn” rate of 1.5 percent from 1.7 percent in the prior quarter. The company also retired $481 million in debt during the quarter.

Analyst Christopher Larsen, with Prudential Equity Group LLC, raised his earnings per share estimates by a few pennies for the fourth quarter and full year.

But he noted that Nextel’s 2004 guidance calls for an increase in capital expenditures to $2.4 billion, up from $2.2 billion. The extra costs are expected to lower Nextel’s free cash flow to $1.5 billion from $1.7 billion.

Despite the lower free cash-flow estimates, Mr. Larsen said Nextel “is still a long-term attractive play,” rating the stock a “buy.”

Mr. Larsen does not own any stock and Prudential Equity, a New York subsidiary of Prudential Financial Inc., has no business with Nextel.

While some analysts were concerned about the increased capital expenses, analyst Greg Gorbatenko said Nextel is simply investing in its expanding business.

“Subscriber growth is very strong. Had it not been as strong, the company would not need as much for capital expenditures,” said Mr. Gorbatenko with Chicago research firm Marquis Investment Research.

Nextel will still have to work to keep its push-to-talk communication technology competitive among other companies like Verizon Wireless and Cingular Wireless, he said.

Mr. Gorbatenko does not own any Nextel shares and Marquis has no business with the company.

Shares of Nextel closed yesterday on the Nasdaq Stock Market at $25.28, down 11 cents from a week earlier at $25.39.

Bill Cram, research analyst for Chicago boutique investment bank Loop Capital Markets, said he expected Nextel’s stock to increase once Nextel has completed a deal with the Federal Communications Commission. Mr. Cram, who rated Nextel as “outperform,” does not own any Nextel stock and Loop Capital has no banking relationship with the company.

The FCC has authorized giving Nextel a chunk of spectrum in exchange for some spectrum the company had been using. Nextel spokesman Tim O’Regan said the company has not yet accepted the FCC’s decision. He would not say when the deal might be finalized.

Nextel pushed for the spectrum swap as a way to ensure public service communication systems are free of interference.

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