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April 24, 2008

NII Holdings: Another Solid Quarter Supports More Stock Recovery

NII Holdings (NIHD) 1Q08 results were at the high end of expectations pretty much across the board. Given many worries that had cut the stock in half in the last six months, the results provided relief. The shares rose 8% yesterday, building on a recovery that is now approaching 50% from the February low. I think there is plenty more to come.

NIHD reported revenue, EPS, EBITDA, and subscriber growth of 39%, 35%, 36%, and 35%, respectively. Each figure tracks above full year guidance for 30% growth. NIHD trades about 7 times my 2008 EBITDA expectation and less than 15 times consensus earnings estimate. For 30% growth and a history of superb execution, I think that is pretty cheap. Granted the valuation is in line with other emerging markets wireless companies but until worries emerged over competition in NIHD's largest market, Mexico, and in its technology platform (iDEN), the shares traded at twice its peer group valuation.

This is the second consecutive quarter of good results since the fears manifested last summer and fall. I think some of the premium will return as the company kicks out another few quarters of solid results showing 30% plus growth. The need to upgrade current networks and add spectrum means that the company will be spending several billion in capital starting within a year but the balance sheet is solid with net debt to EBITDA at just 0.5 times my 2009 estimate. I think the shares will work steadily higher given a decent market toward my near-term target of $60. I am considering averaging down again, an opportunity that might present itself when the market is weak and the company bids for spectrum and/or formally announces its network upgrade.

Posted by Steve Birenberg at April 24, 2008 03:43 PM in NIHD