In the past year, certain beaten-down telecom stocks saw major gains after big deals were announced. Investors had trashed a few of these stocks for what appeared to be good reasons, as some of these companies carried plenty of debt on the balance sheet and were also posting losses. For example, Sprint Nextel Corp. (S) shares went down to about $2 last year as the company posted repeated losses that made some investors nervous. However, Sprint shares more than doubled off those lows after Softbank announced it would invest billions into the company. This deal improved the balance sheet outlook and provided relief for many investors that Sprint would remain viable.
Not long ago, another deal came up whereby Sprint agreed to buy Clearwire (CLWR), and that offer was then followed up with another bid by Dish Network (DISH). These offers have re-ignited Clearwire shares, which had seen a 52-week low of just 83 cents. Now, the stock trades for about $3.19 per share. Sprint shares have a 52-week low of $2.20, but now trade around $5.75.
Even as we have seen a big rally in both of those stocks, analysts still expect losses. The earnings estimates for Sprint are for a loss of 81 cents per share in 2013. Analysts also expect Clearwire to lose about 85 cents per share this year.
With some telecom companies seeing major deals even while reporting losses, it makes sense to look around at other beaten-down stocks in this sector, especially ones that could be the subject of a takeover offer in the future. That line of thinking brings us to NII Holdings, Inc. (NIHD). This company provides a range of telecommunications services, which include voice, data, and wireless Internet access. It has focused its telecom offerings in Latin American countries such as Brazil, Peru, Argentina, Mexico, and Chile.
In 2005, Sprint merged with Nextel Communications. Before being spun-off as a separate company, NII Holdings, Inc. was the international business unit of Nextel Communications, Inc. This is why NII Holdings operates under the "Nextel" brand name in Latin America. This shared past history makes one wonder if Sprint Nextel would have any interest in buying NII Holdings. A recent report by Morgan Stanley (MS) lists a number of companies that could be a takeover target, and NIHD makes the list. However, the report does not elaborate on who the likely suitors might be, but regardless of what company it might be, this stock could be worth considering as a takeover target since it trades at bargain levels.
Analysts expect NII Holdings to report a loss of about $1.37 per share for 2013. Part of this is due to the fact that the company is investing to upgrade its network. This could lead to increased growth and better profit margins in the future. The lack of profits is a risk factor in the long-term, but investors might be short-sighted to only focus on current results. While it would be nice to see the company reporting profits now, the shares still seem worth considering, especially at just about $6 per share. The stock trades way below book value, which is $17.11 per share. If the company returns to profitability, the shares could rebound sharply. In the meanwhile, the potential for a takeover should keep a floor under the stock, and if it does get a buyout offer, the shares are likely to soar just like Sprint and Clearwire.
Here are some key points for NIHD:
Current share price: $6
The 52 week range is $4.75 to $24.32
Annual dividend: None
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial advisor.
Disclosure: I am long NIHD.