Nextel's Next Feat?

Although Nextel Communications (NXTL) has been a live-wire act -- rocketing from 6.70 a share on Sept. 3, 2002, to 17 on Aug. 27 -- the big U.S. wireless carrier is still the top stock to buy for some pros. "It could double in 18 to 24 months, based on the rapid earnings growth we see," says Graham Tanaka of Tanaka Capital Management, which owns shares. Its Tanaka Growth Fund is up 35% this year, vs. the Standard & Poor's 500-stock index' 14% gain. (Last Oct. 7, Nextel was featured here at 7.19.)

An outfit that long lived on hope, Nextel is now a play on real "quality earnings," says Tanaka. It trades at just 12 times consensus 2004 estimates. Nextel caters to the business trade and high-end individual markets -- for its Direct Connect service that provides phone linkups at the push of a button. Not yet reflected in the price, says Tanaka, is the potential of Nextel's growing government business -- now less than 10% of sales. That could triple in a couple of years, he figures, as Nextel seeks more spectrum capacity. Also potential winners: the family and youth markets. These, plus new products, such as phones with access to Blackberry and Web data, should fuel growth, says Tanaka. Nextel added 591,000 subscribers in the second quarter, making a base of 12 million, up from 10.6 million in 2002.

"For a stock in a struggling industry, Nextel has turned in results that have impressed the Street," says Charles Hill, research director at Thomson First Call. He notes that of 33 analysts, 19 have "strong buy" or "buy" ratings. Only two rate it a "sell." Consensus earnings estimates are $1.08 a share for 2003 on sales of $10.2 billion, and $1.44 for 2004 on $11.4 billion. Analyst Eric Weinstein of Credit Suisse First Boston sees Nextel earning $1.19 in 2003 and $1.66 in 2004.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

Before it's here, it's on the Bloomberg Terminal.