Churn Rates Holding Back NII

NII Holdings (NIHD - Analyst Report), formerly known as Nextel International, is licensed to provide wireless services in Mexico, Brazil, Argentina and Peru. The company remains challenged with higher churn levels than expected and a possible slowdown in regional economics that may impact business communications needs.

However, overall demand of wireless services in Latin America, in the longer term and the company's expansion activities into untapped markets remain encouraging. NIHD's growth is being driven by strong demand for its wireless services including the recently launched International Direct Connect (IDC), the first of its kind push-to-talk service on an international basis.

The company reported stronger-than-expected results in the last quarter. However, we take a conservative approach to valuation, maintaining our Hold recommendation until we assess stronger net subscriber additions.

NIID is trading at 18.2x our estimate for 2008 earnings, which represents a discount to the forward P/E ratio for the peer group (consisting of other pure-play wireless operators in the Americas region) averages. On the basis of enterprise value (EV) to EBITDA (a common valuation metric for wireless carriers), the stock is trading at 8.8x estimated EBITDA for 2008, at a premium to the peer group average. We increase our valuation target to $55.00 share based on 20x 2008 earnings projection, in line with peer group earnings metrics.

Read the full analyst report on NIHD.