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April 27, 2007

Excellent Results From NII Holdings - $100 Stock Price Within Reach

NII Holdings (NIHD) 1Q07 numbers were virtually on top of my estimates across the board. Every financial and subscriber number on a corporate and country-by-country basis was right on target. Since my expectations were at the high end of the street estimates, this sets the stage for upside to current estimates later in the year. Despite the strong results, NIHD did not increase its won guidance but this is not anything to be concerned about as the company has typically waited until the second quarter conference call to update guidance.

NIHD has a history of beating estimates and its own guidance and momentum coming out of 1Q is excellent. Subscriber growth, revenue, margins, EBITDA, and free cash flow are all poised to accelerate as the build out of its network in Mexico and Brazil winds down later this year. Subscriber growth in 1Q in both markets was a little ahead of expectations setting up really strong operating leverage later this year and in 2008. Even more encouraging, the cost to acquire customers in 1Q was lower than expected. Normally, when a cellular company acquires more customers than expected operating income is below expectations because of the cost of acquiring the extra customers. If NIHD can sustain the lower cost per gross subscriber addition, operating leverage will be even better than expected....

In other news, NIHD announced that its long-time CFO would be moving to a newly created business development position and new CFO has been hired. Both the individuals are highly regarded so there is nothing negative to read into the news. It is possible that the beefing up the management could mean that expansion beyond the current five markets into other Latin American countries is possible. Depending on the timing and financing of such a move it could be positive as it would exnted the growth profile on NIHD into the future. Personally, I'd like to see it be a late 2008/2009 event so that the company can bank the operating leverage and prove to the street that entering significant markets is well worth the investment.

Barring a general setback in emerging market equities (NIHD offers iDEN service in Mexico, Brazil, Argentina, Peru, and Chile), I think investors will begin to look ahead to what should be extremely good 2008 results. The shares can comfortable trade at $90-100 on current 2008 estimates which if history is a guide are probably too low. Were the company to meet the top end of current analyst estimates for 2008, upside would over $100. I think that is a realistic target for late in2 007 if 2Q follows a similar pattern to 1Q and estimates and guidance are increased.

Posted by Steve Birenberg at April 27, 2007 10:28 AM in NIHD