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NII Holdings Up 66.7% Since Earnings: Will It Continue?

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NII Holdings Inc. reported earnings a little over a month ago. The company shares gained a whopping 66.7% since then, outperforming the market. It provides differentiated mobile communication services under the Nextel brand primarily in Brazil and Argentina.

Will the recent positive trend continue till the stock's next earnings release or is it a temporary phenomenon? Let's take a quick look at its most recent developments in order to get a better handle on the important drivers.

AINMT Deal: A Major Positive

On Jun 6, NII Holdings and Norway-based international telecom operator AINMT Holdings AB entered into an agreement to jointly own and operate the former’s Brazilian arm – Nextel Brazil. AINMT will invest $50 million for a 30% stake in Nextel Holdings – the owner of Nextel Brazil, with the option to invest an additional $150 million later. Exercise of the option will give AINMT a 60% controlling stake in the company.

NII Holdings is trying hard to restructure its Nextel Brazil unit. The new partnership will provide the much needed liquidity for this aspect. AINMT is the parent company of telecom service provider “ice,” the fastest growing mobile network operator in Norway. A joint-venture with AINMT will help Nextel Brazil focus on data-centric growth strategy. AINMT has a strong workforce specialized in the telecom sector. It also runs a lucrative business model in various countries.

Favorable Operational Metrics

In the first quarter of 2017, NII Holdings’ total revenue and earnings per share (EPS) increased 10.6% and 18.2% year over year, respectively. Gross margins widened from 37.63% to 50.43% compared with the same period last year. EBITDA margin was 2.04% compared with a negative 3.55% in the year-ago quarter. The expansions of 3G wireless networks in Brazil and Argentina have positioned the company to compete more effectively.

Nextel Brazil's average monthly service revenue per subscriber (ARPU) for the first quarter of 2017 was $21, a 31% increase on a reported basis, and a 5% increase on a constant currency basis, compared with the same quarter last year. Cost per gross addition (CPGA) was $84, a 12% decrease on a reported basis, and a 28% decrease on a constant currency basis, compared with the prior-year quarter.

Valuation Looks Compelling

With respect to the EV (enterprise value)/EBITDA multiple, NII Holdings is currently trading at 42.3x compared with the industry average of a mere 6.5x. However, with respect to the Price/Sales metrics, the stock is currently trading at just 0.1x compared with the industry average of 1.4x.

Similarly, with respect to Price/Book Value, NII Holdings’ current multiple of 1.0x is at a massive 140% discount to the industry average. For 2017, the Zacks Consensus Estimate for EPS is indicating 15.7% growth year over year compared with the industry growth of 2.4%. 

NII Holdings, Inc. Price and Consensus

 

NII Holdings, Inc. Price and Consensus | NII Holdings, Inc. Quote

NII Holdings currently carries a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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