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Still Neutral on NII Holdings

Zacks Equity Research

On Dec 26, we maintained our Neutral recommendation on NII Holdings Inc. (NIHD). The company reported tepid third-quarter 2013 results with both the top and the bottom lines missing the respective Zacks Consensus Estimate.

Why the Reiteration?

Higher churn, weaker exchange rate, lower ARPU, higher operating expenses and stiff competition in the Latin American markets may act as headwinds for the company going forward. Moreover, slower 3G deployment and costs associated with it may further undermine the company’s top-line growth. Further, the company also anticipates losing almost 650,000 subscribers in 2013.

NII Holding’s leverage ratio has also increased from 0.67 in 2012 to 0.82 at the end of the third quarter of 2013, indicating its higher dependency on debt financing. We believe that the company will issue more such senior notes in the upcoming quarters in order to fund its 3G network rollout across its footprint, which in turn will increase its leverage ratio.

Nevertheless, the ongoing restructuring of the business model coupled with the launch of smartphones in Mexico may act as tailwinds for the company in the long run. Moreover, the company recently sold 2,790 Brazilian towers and 1,666 Mexican towers for $413 million and $398 million, respectively, to American Tower. The proceeds will be used to finance its 3G deployment plan.

Recently, NII Holdings has also decided to reduce its workforce by over 25% and eliminate over 1,400 employees in market operations. This restructuring process is aimed to streamline management’s structure, which is expected to improve efficiency and reduce costs by $50–$55 million per annum.

Currently, NII Holdings has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked stocks in the wireless tower industry include Ceragon Networks Ltd. (CRNT), Fairpoint Communications, Inc. (FRP) and KT Corp. (KT). Currently, all three have a Zacks Rank #2 (Buy).

Read the Full Research Report on NIHD
Read the Full Research Report on KT
Read the Full Research Report on FRP
Read the Full Research Report on CRNT

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