NII Holdings: A Buy Ahead Of Earnings

| About: NII Holdings, (NIHD)
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In my last article, I disagreed with a UBS downgrade of Under Armour (NYSE:UA). Not that I am after UBS, but they have changed their rating on another one of my portfolio holdings --- this time an upgrade on NII Holdings (NASDAQ:NIHD) due to recent share price weakness. I think they have it right this time, and in fact, I was already in the process of writing this article about the attractive valuation when I learned of the ratings upgrade. I too feel the shares have been overly punished during the last 2 weeks.

Shares are now nearly 26% off of their 52 week highs, and trading below their 50 and 200 day moving averages. Following the upgrade, there was a slight lift in the stock but not by as much as I would have expected…it closed Friday at $72/share. Another catalyst that lies ahead are their quarterly earnings that will be released before market open on Thursday, Oct. 25th. I think the numbers will be inline with expectations at a minimum and I wouldn't be surprised if they came in ahead of estimates.

The company is growing tremendously, investing heavily back into their business through capital expenditures and buybacks, and continues to expand their subscriber base in existing and new markets at an exceptional clip. What's not to like?

With their 3rd quarter earnings, we'll learn how much of the $170 million remaining on their $500 million authorized buyback was repurchased over the quarter. I expect them to continue to repurchase shares over the next 12-18 months, though to what extent will depend on how much of the $1.2 billion convertible note issued in Q2 will be allocated towards driving growth in Brazil and Chile. Either way the dollars will be going back into the business and will help to sustain their growth.

I think the future is bright for NIHD. They continue to position themselves in key markets in Latin America, and at some point in the future I would expect their spending to slow, the growth to continue at the same pace, and for profits to come pouring in.

Valuation

Shares trade at a warranted premium to their main competitor America Movil (NYSE:AMX), but you get higher expected growth, steadier margins, and a lower price/sales with NIHD. Year over year revenue growth has been steadily declining for 3-4 years for AMX from 49% in 2004 to 24% over the trailing twelve months, where NIHD has been steady at 35% growth over the same period. My price target is $100, which reflects a conservative multiple of 27.5 applied to 2008 EPS of 3.64 (39% upside from Friday's closing price).

This is a long-term growth story in one of the hottest industries and markets around. I plan to take advantage of the dip to pick up some additional shares ahead of earnings. At the time of writing, I owned long positions in NIHD.

Technical Side Note

Check out the chart for the first week of each calendar month for the last 6-9 months. There are always sharp pull-backs for the first 5-6 trading days of the month, directly followed by a sharp reversal of this trend. Other telecom companies do have somewhat similar trends, but they are not nearly as pronounced. Probably nothing, but thought it was interesting to point out this strange pattern. If history is any indication of the future (which we know it's not), the shares should head higher this week.

Disclosure: Author has a long position in NIHD