Check Out This Mexican Telecom Giant

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With GDP growth slowed to a crawl in many parts of the developed world, more and more investors are turning to emerging markets in order to realize greater capital appreciation. Mexico has been able to maintain GDP at a steady clip despite the global financial crisis, and is becoming an increasingly important player in the world economy. America Movil (NYSE: AMX), one of Mexico’s largest companies, appears to be doing particularly well, aside from enjoying an attractive valuation at the moment.

Stock at a Glance

America Movil, sporting a huge market cap of around $95 billion, is one of Latin America’s biggest Telecom service providers. The firm’s activities are quite diversified, and aside from offering traditional telecom services, the company also engages in the development of internet communication and e-commerce solutions. The telecom giant, who employs close to 160,000 people, has seen its share price appreciate just short of 6% in the last twelve months. The stock has a beta of 1.18 and offers a dividend yield of 1.73% sustained by a very low 13% payout ratio.

Earnings

Despite a fairly severe miss in Q2 2012, the company did quite well over full-year 2012 with healthy beats in both Q1 and Q3. The latest report, Q3 2012, was rather upbeat with a large increase in profits largely due to positive foreign exchange results. Net profit came in at MXN31 billion, up 67% compared to the same period a year ago. Despite the relatively soft macro environment cited by the management, the company increased accesses by 5.6 million, with Mexico accounting for approximately a quarter of this increase with 1.1 million additions. In terms of postpaid expansion, Peru and Guatemala saw especially strong growth with increases of 41% and 30% respectively.

Valuations and Metrics

America Movil trades at 13.42x earnings compared to the industry average of 15.47x. The price to book is a little high at 4.14 but price to sales is reasonable at about 1.7. The firm has an excellent operating margin of 22% and return on equity is also high at 29.15%. Debt is an issue though with total debt to equity at around 160. The stock in any case appears cheaper than that of some US counterparts.

AT&T (NYSE: T) for example trades at 27.22x earnings, although the forward P/E is comparable at 12.6x. Moreover, this American telecom giant, with over twice America Movil’s market cap, has lower revenue growth as well as well as lower margins. Verizon (NYSE: VZ) is valued at a worrying TTM P/E ratio of almost 139 although forward P/E is perfectly reasonable at 13.6. Verizon’s revenue growth is equal to that of America Movil, although like AT&T, has substantially lower margins. Based on these metrics, America Movil is not only cheaper, but is also delivering higher growth and higher margins than its US counterparts.

Bottom Line

With market saturation as high as it is in the developed world, emerging markets are the place to be for high growth, at least for the Telecom sector. America Movil is expanding rapidly and delivering solid earnings as well as returns for investors. Trading at a discount to the industry, as well as many large-cap US telecom companies, this Mexican company offers high growth at a reasonable price.


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