América Móvil (NYSE: AMX) is an interesting telecom opportunity for investors, given its performance relative to US-based competition and the outlook for emerging markets next year. This company is performing in alignment with its competition(including FX headwinds), and emerging markets are expected to outpace the developed world by more than 2:1 in 2024. Analysts' sentiment aligns with this idea and view the stock as deeply undervalued.
The growth in Latin America, América Móvil’s target market, will be spotty on a country-to-country basis in 2024, with Mexico expected to grow 1.2%, South America an average of 2.1%, and the Caribbean at 2.8%, excluding Guyana. Guyana is an outlier due to its large oil deposits and will lead the world with nearly 100% GDP growth in 2024. The takeaway is that US GDP is projected to grow less than 1.0% next year, so emerging markets look like the best place to park new money.
América Móvil Growing Subscribers, Paying Shareholders
The biggest takeaway from América Móvil’s Q3 results is that it is still growing in subscribers. However, the company produced MXN 204 billion in net revenue for a decline of 3.3% due to FX headwinds. The Mexican peso has appreciated against all Latin American currencies over the past year and shaved hundreds of basis points off the top line. Adjusting for FX, service revenue grew 3.8%, with the fixed line up by 2.2%, compounded by a 4.8% increase in mobile.
Subscribers grew by 3 million or about 1%, bringing the total to 306 million. Within that, post-paid increased by more than 2 million, with prepaid growing by nearly 1 million. Broadband subscriptions also grew, adding 223,000 new accounts. Margin news is also favorable. The adjusted FX-neutral margin grew by 3.9%, reflecting localized top-line strength.
Net income fell by 6.7% on an as-reported basis, including a 17% increase in depreciation. However, net income reached MXN42 billion, sufficient to sustain the capital return outlook. América Móvil pays dividends and repurchases shares as permitted by income, spending nearly MXN10.5 billion in Q3 paying shareholders. One thing to remember about this dividend is that it is paid semi-annually and varies yearly. The payout in 2023 is about 1.5% in yield.
The company uses debt to finance operations, invest in growth, and pay shareholders, but leverage is low. The company’s debt is up compared to last year but relatively flat, with leverage of 1.4X the trailing 12-month EBITDA.
The Analysts See América Móvil Moving Higher in 2024
There are 9 analysts with current ratings tracked by Marketbeat, and they are Holding the stock. The consensus Hold rating is down from last year’s Moderate Buy, but the price target is trending higher. The consensus price target implies a 35% upside for this market, while the low target of $17.50 implies this stock will rise at least 10%. The most recent activity includes 2 upgrades from Neutral to Buy with price targets above the consensus estimate.
Bank of America is cautious on broadband and mobile but sees the stock as attractively priced. They cite the 9.5% free-cash-flow margin and low valuation, while UBS cited a “compelling combo” of catalysts. Those include improving operations, low valuation, and a more straightforward path to cash flow conversion. In their view, the market has priced in the worst, and the worst is far from reality.
The Technical Outlook: América Móvil Falls to Multiyear Low
The price action in AMX shares fell following the Q3 release and sent shares to a new multi-year low. That low resulted in bargain hunting and dip-buying to reveal support at a critical level. The AMX market should consolidate and rebound if this level can sustain support. This stock could fall below critical support to $14 or lower if not. In that scenario, the stock would offer a more compelling entry than it does today.
