Today's Stock of the Week recommendation comes from Jason Clark, analyst at Al Frank Asset Management in Laguna, Calif., publisher of the Prudent Speculator newsletter.
American Movil S.A.B. de C.V. (AMX) is the largest wireless service provider in Latin America and one of the 10 largest in the world. The company was established in the fall of 2000 via a spin-off from Telefonos de Mexico, and is controlled by Mexican billionaire Carlos Slim. AMX has operations in 17 countries, sports 183 million wireless subscriptions and 3.8 million fixed lines located throughout Central America and the Caribbean region, and offers coverage within a total area that contains approximately 800 million people. In addition to its dominant Mexican subsidiary Telcel, American Movil's operations include prepaid wireless giant TracFone, which currently has approximately 11 million subscribers throughout the United States, as well as Telecom Americas, the second largest wireless operator in Brazil.
Shares of American Movil trade on U.S. exchanges in the form of American Depository Receipts, but the company reports financial data in Mexican Pesos (with 14.16 pesos currently equaling one U.S. dollar). During fiscal Q4 2008 (which was reported in early February of 2009), revenue spiked 11.6% compared to the year-ago period to 94.4 billion pesos, driven by strong wireless subscriber growth. The company reported net subscriber adds of 10.1 million (including more than 3 million in Brazil, 2 million in Mexico and 2 million in Columbia).
During the earnings conference call, management forecast 2009 net subscribers would be up by at least another 19 million. In addition, earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 7.3% to 35 billion pesos, fueled by an EBITDA margin north of 35%. Also during the call, the company said it sees capital expenditures tracking down a little bit, even though it plans to continue building out its 3G network, and made note of the fact that only 5.7% of its debt is due in 2010 (with 33% maturing beyond 2015). Further, the board of directors announced last week that they would propose a special cash dividend of 30 pesos per share and would also propose increasing its share buy-back program by 20 billion pesos.
We believe that the global slowdown will continue to be a headwind to the firm in the near-term and we also recognize that competition, political risks and unfavorable foreign exchange trends could bring about additional danger for the shares. However, with very strong free-cash flow, a solid balance sheet, a strong competitive position and plenty of room for additional penetration into its chosen operating regions, we view AMX shares as offering appealing long-term value.
Currently trading more than 50% below the 52 week high and boasting a forward earnings multiple of 9.4 (below its 5-year average of 17.5), we would add AMX shares to portfolios looking for international exposure within the communications sector. Our buy limit is $33.94 and our LG/FG is $68/$55.
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