5G Revolution And Critical Focus Propel Telecom Growth Across Latin America

Key Takeaways

• Network upgrades and fiber expansion in Mexico position América Móvil for growth, enhancing revenue and net margins via efficiencies.
  
• Strategic debt management and strong 5G adoption in Latin America are expected to drive revenue and earnings growth.
  
• Fluctuating currencies and economic instability in Latin America pose risks to América Móvil's financial obligations, revenue growth, and net margins.

Catalysts

Provides telecommunications services in Latin America and internationally.

• América Móvil's ongoing investment in network upgrades, with 84% of Mexican fixed broadband connections now on fiber, positions it competitively for future growth, impacting revenue and potentially expanding net margins due to efficiencies.
  
• The increasing adoption of 5G across Latin America, highlighted by significant movement from prepaid to postpaid in regions like Brazil and strong 5G traffic in Colombia, is expected to drive revenue growth and improve ARPU (Average Revenue Per User).
  
• Robust subscriber additions in postpaid segments, particularly in regions like Brazil and Colombia, are projected to boost service revenue and contribute to earnings growth.
  
• Notable EBITDA growth driven by improved service revenue growth, particularly in Brazil and Colombia, supports expectations of achieving higher overall earnings.
  
• Strategic debt management and currency consideration, focusing on local currency financing and reduction of short-term debt, may optimize financial expenses, enhancing net profit margins.

América Móvil. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming América Móvil. de's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 12.4% in 3 years time.
• Analysts expect earnings to reach MX$119.6 billion (and earnings per share of MX$2.0) by about November 2027, up from MX$36.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MX$88.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.1x on those 2027 earnings, down from 27.0x today. This future PE is greater than the current PE for the US Wireless Telecom industry at 9.4x.
• Analysts expect the number of shares outstanding to decline by 0.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.23%, as per the Simply Wall St company report.

América Móvil. de Future Earnings Per Share Growth

Risks

• The depreciation of the Mexican peso and other Latin American currencies could lead to increased financial obligations and result in lower net margins due to increased expenses when converted from foreign debt or commitments.
  
• Competition in the fixed broadband market in Mexico remains high, potentially leading to higher customer churn and pricing pressures, thus affecting future revenue growth.
  
• América Móvil's net debt increased by MX$47.3 billion, which indicates rising financial leverage that could impact earnings if not managed well, especially with fluctuating currency values.
  
• Economic fluctuations in Latin America, particularly in prepaid markets, could impact subscriber activity and revenues, as they are correlated with the purchasing power of consumers.
  
• The ongoing decline in PayTV revenue, though less significant, suggests a risk of continual decline in certain service lines which may affect overall revenue diversification and growth.

Valuation

• The analysts have a consensus price target of MX$19.38 for América Móvil. de based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$21.0, and the most bearish reporting a price target of just MX$17.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be MX$965.1 billion, earnings will come to MX$119.6 billion, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 13.2%.
  
• Given the current share price of MX$16.23, the analyst's price target of MX$19.38 is 16.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.