NII Latin Growth Warrants Caution

NII Holdings, Inc. (NIHD - Analyst Report), formerly known as Nextel International, is licensed to provide wireless services in Mexico, Brazil, Argentina and Peru.

The company reported stronger than expected results in the recent quarter which were highlighted by improvement in profitability driven by robust subscriber growth. NIHD announced intentions of higher capital spending in 2008 to expand the geographic coverage of its iDEN network. Overall demand for wireless services in Latin America remains strong and key growth markets, including Brazil and Mexico, offer financial growth opportunities.

However, the company remains challenged with higher than expected churn levels as well as growing competition in its regional markets. Ongoing consolidation activities and aggressive deployments of next generation wireless services by competitors may foster higher customer churn moving forward. We take a conservative approach to valuation, maintaining our Hold recommendation until we are convinced with the sustainability of NIHD’s earnings and overall financial momentum.

NIHD is trading at 18.2x our estimate for 2008 earnings, which represents a premium 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 8.6x estimated EBITDA for 2008, at a premium to the peer group average. We set a valuation target of $57.50 based on 20x 2008 earnings projection.

Anindya Barman contributed to the report.

Read the full analyst report on NIHD