NII Holdings: Big Risks, Big Upside

Today we will discuss why you should own NII Holdings (NIHD - commentary - Cramer's Take). Previous columns in this series have explained why I think you should own

• Dreamworks Animation (DWA - commentary - Cramer's Take),
• Discovery Communications (DISCA - commentary - Cramer's Take),
• Time Warner (TWX - commentary - Cramer's Take) and
• AT&T (T - commentary - Cramer's Take) and Verizon (VZ - commentary - Cramer's Take).

NII Holdings is a major wireless communications in Latin America with operations in Mexico, Brazil, Argentina, Peru and Chile. NIHD operates the Nextel service in each of these countries but has no relationship with Sprint Nextel (S - commentary - Cramer's Take) beyond sharing a technology platform. NIHD is a U.S. company reporting in U.S. dollars using GAAP. Experienced American telecom executives make up most of senior management, while local citizens in each country handle operating management.

NIHD presently has about 5.8 million subscribers. Mexico is the largest market with 2.6 million. Brazil is second largest and fastest growing, with 1.7 million. 2008 revenue should be about $4.2 billion with $1.2 billion in EBITDA. Earnings per share are projected at $2.50. Revenue, EBITDA and EPS are projected to grow by 32%, 32% and 20%, respectively.

NIHD shares have been slaughtered since peaking at over $90 in the early fall of 2007. The stock initially came down due to concerns about completion in Mexico. Despite meeting its guidance in Mexico, the shares never regained their premium multiple. A second leg down began in September, corresponding with the market crash, which has been far worse in emerging markets and compounded by 30% to 50% drops in NIHD's operating currencies.

There is a wide range of estimates for 2009, but based on current consensus, NIHD is trading at 7 times EPS and 3.5 times EBITDA, which are projected to be unchanged. The balance sheet is very strong with net debt of $1 billion.

Short-Term Catalysts

NIHD is a cheap stock with superior management that has successfully dealt with volatile emerging-market economies and currencies in the past. Investors have been waiting for NIHD to stumble for the last four quarters, yet the company continues to grow its subscriber base at more than 30%.

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At time of publication, Birenberg was long NIHD, DWA, DISCA and TWX in personal and client accounts, although holdings can change at any time.

Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.