Fiber And Mobile Upgrades Will Drive Digital Expansion

Key Takeaways

• Network upgrades and strategic market consolidation enhance customer retention, pricing power, and long-term revenue stability across core regions.
  
• Demographic trends and digital adoption drive increased demand for high-speed connectivity, supporting sustainable growth in broadband and mobile services.
  
• Mounting competitive, regulatory, and financial pressures threaten Liberty Latin America's growth, margins, and earnings, while operational turnaround efforts face significant execution risks.

Catalysts

Provides fixed, mobile, and subsea telecommunications services in Puerto Rico, Panama, Costa Rica, Jamaica, Latin America and the Caribbean, the Bahamas, Trinidad and Tobago, Barbados, Curacao, Chile, and internationally.

• The acceleration of fiber-to-the-home (FTTH) and mobile network upgrades across Liberty Latin America's main markets positions the company to benefit from rising internet penetration, increasing demand for high-speed connectivity, and an expanding digital economy in the region, which supports both subscriber growth and ARPU uplift-positively impacting top-line revenue.
  
• Demographic trends such as a large youth population, urbanization, and growing per-household device adoption are expected to fuel greater data usage and increased uptake of digital services (e.g., streaming, e-learning, remote work), driving higher broadband and mobile penetration and supporting sustainable, long-term revenue and ARPU growth.
  
• Strategic execution of fixed-mobile convergence (FMC) is resulting in higher customer retention, lower churn, and a more predictable revenue base in key markets, which contributes to margin expansion and greater earnings stability over the long term.
  
• Ongoing cost rationalization and the integration of acquired assets, together with disciplined capital management (e.g., lower P&E additions as a % of revenue, refinancing activities, and a substantial reduction in capital intensity), are providing significant operating leverage and adjusted OIBDA margin expansion, supporting improvements in earnings and free cash flow.
  
• Market rationalization and consolidation in several core geographies-such as the shift from four to two players in Panama and the planned JV in Costa Rica-are creating more favorable competitive dynamics, enhancing Liberty Latin America's pricing power and supporting higher net margins and long-term earnings growth.

Liberty Latin America Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Liberty Latin America's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -17.9% today to 4.2% in 3 years time.
• Analysts expect earnings to reach $201.3 million (and earnings per share of $0.51) by about July 2028, up from $-792.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from -1.6x today. This future PE is lower than the current PE for the US Telecom industry at 15.8x.
• Analysts expect the number of shares outstanding to grow by 1.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Liberty Latin America Future Earnings Per Share Growth

Risks

• Persistent revenue and market share declines in Liberty Puerto Rico-driven by postpaid mobile losses, lower ARPU, and ongoing churn-have caused the company to withdraw multi-year group guidance, signaling uncertainty around its ability to return this key market to growth; this creates long-term headwinds for consolidated revenue, net margins, and earnings.
  
• Liberty Costa Rica and other segments face intense competition, leading to ARPU compression and a 7% decline in fixed revenue year-over-year in Costa Rica, illustrating a risk that increased competition and limited pricing power may suppress revenue growth and pressure profitability.
  
• The company's $8.2 billion total debt and a consolidated net leverage ratio of 4.6x, combined with a rising average borrowing cost (now at 6.5%) and negative adjusted free cash flow in the current quarter, highlight ongoing financial risks and reduced flexibility, increasing the likelihood of future earnings being eroded by higher interest expenses.
  
• Diminishing government subsidies and program terminations (such as the ACP and FCC funding in Puerto Rico) have contributed to revenue shortfalls, revealing the company's vulnerability to regulatory changes and shifting state support, which may continue to adversely impact future revenue streams.
  
• Reliance on successful execution of turnaround strategies, cost cutting, and integration (particularly in Puerto Rico and Costa Rica) presents execution risk; any delays or failures to improve operational efficiency and competitive positioning will hinder margin recovery and long-term earnings growth.

Valuation

• The analysts have a consensus price target of $9.75 for Liberty Latin America 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 $13.9, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.8 billion, earnings will come to $201.3 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 11.6%.
• Given the current share price of $6.52, the analyst price target of $9.75 is 33.1% 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.