In its core Latin American markets, America Movil (AMX) is facing economic turmoil, political disruption, tough competition, and an historic pandemic still wreaking havoc, notes Roger Conrad, editor of Conrad's Utility Investor.
Despite all that, America Movil reported a 1.2 percent increase in Q1 revenue, 5.2 percent higher EBITDA and positive stock returns since the beginning of tumultuous 2020. The blue chip company’s performance is a testament to efficient operations, global reach (67 percent of EBITDA earned outside Mexico) and strong balance sheet.
Now rated "A-" by Fitch with a positive outlook, it’s likely to earn a boost to "A" if EBITDA margins improve to more than 31 percent of revenue, and debt to EBITDA declines to less than 1.5 times as expected in the next couple years.
Worth 20 ordinary America Movil shares, the company’s NYSE-listed American Depositary Receipts (ADRs) trade at a discounted 13 times expected next 12 months earnings.
Getting the stock to a meaningfully higher valuation will likely take a diminished pandemic impact in South America. But while the timing is still highly uncertain, the company’s unmatched ability to benefit when it does is not.
Mainly, America Movil already operates the best in class network in multiple countries. That puts it first in line to capturing rebounding revenue from business customers. And that advantage that will only grow as 5G service rolls out the next few years. Management’s successful launch of Claro Box TV in Brazil bodes well for expanding that service into other countries.
The sale of the company’s US operations to Verizon (VZ) for $6.25 billion in cash and stock is on track to close in the second half of the year. And the pending acquisition of certain wireless assets from Brazil's Oi SA (OIBRQ) will immediately lift to earnings later this year.
Shareholders will also benefit from the spinoff of 37,000 plus wireless towers into a separate entity, which will become an instant takeover target for the likes of American Tower (AMT) even as it removes another big chunk of debt. America Movil is a buy for patient investors up to $18.
