America Movil (AMX, Financial) is the largest telecommunications company in all of Latin America with over 280 million wireless customers and over 80 million television and internet users across 25 countries. The company dominates its domestic market in Mexico, with north of 65% market share. Mexico accounts for about 30% of its revenue and earnings, and Brazil accounts for about 20%.
Of course, currency volatility is not helping matters, with the Mexican peso and Brazilian real both at five-year lows against the dollar. Lower currency values have not stopped the upward movement in the company's top line, which has grown from 345 billion pesos to more than 1 trillion since 2008. In dollar terms, that growth is $24 billion to over $51 billion, while maintaining very strong profitability.
In the last 12 months alone, America Movil has generated $2.3 billion in net income with expectations of $3.5 billion in 2019. In fact, over the last decade, the company has generated over $65 billion in net income, but that has not helped shareholders much. Other than the 2.29% dividend, the stock is exactly where it was in 2010.
With the stock off 20% year to date, the $45 billion market capitalization still looks expensive. Investors might not continue to place historical price multiples on industry leaders in emerging markets. In this case, America Movil has a five-year average price-earnings rate of 21x. If it earns $3.5 billion in 2019, that would put the market cap in the $73 billion range, in line with its current enterprise value. Yet, owning such a large share of the market also makes it a target and unless mobile saturation continues in Mexico and Brazil, America Movil's growth will slow and possibly reverse with any new competition.
That said, in the latest quarter, the company booked solid profits while the top line grew 2.1% year-over-year, helped by over 1.1 million postpaid subscribers adding in the last year, primarily from the Brazilian market. In Brazil, local revenue has held steady with weakness domestically, down 14% in Mexican pesos. America Movil has successfully expanded its postpaid wireless business, which creates more steady cash flow. North of 40% of its Brazilian wireless base is on a postpaid plan with average revenue per customer at $4.35 (17.22 real) per month.
Also at the end of November, UBS bumped the stock to a "buy," with analyst Maria Tereza Azevedo citing lower risks and calling the stock the "cheapest Latin American telecom."
That may be true, but is it worth $45 billion? The entire telecom market in Latin America is around $150 billion, and it is almost a surefire bet that people will want to pay less for telecom services over time, which will also put pressure on America Movil. Investors should further factor in political uncertainty across the region, which will likely continue to have a larger than necessary impact on the economy.
With new Mexican President Andres Manuel Lopez Obrador taking office Dec. 1, his commentary on the dominance of America Movil in the Mexican wireless market could be good or bad news for investors. In the last five years, Mexican regulators have helped spur competition, which is ultimately a good thing for consumers. Only time will tell how that plays out, but guru investors Ken Fisher (Trades, Portfolio) and Ron Baron (Trades, Portfolio) have sizable stakes in the company.
America Movil is still too expensive.
Disclosure: I am not long or short any stock mentioned in this article.
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