Stock market today: S&P 500 climbs as health care, tech gain; Nvidia earnings loom
On Friday, Scotiabank adjusted its price target for America Movil (NYSE:AMX), a telecommunications giant, lowering it to $17.80 from the previous $18.90. The firm maintained a Sector Perform rating on the stock. The revision follows observations of currency fluctuations and their impact on the company's performance, particularly in the Mexican market where America Movil is based.
The analyst from Scotiabank highlighted that the equity yield of 7.5% in USD is not sufficiently attractive given the competitive and regulatory challenges in Mexico. The recent depreciation of the Mexican peso (MXN) has caused a divergence in the performance of America Movil's American Depositary Receipts (ADRs) and its local stock, with the ADRs experiencing a significant drop while the local stock remained stable amidst considerable domestic economic disturbances.
The report detailed the effects of the MXN's depreciation, noting that while Mexico accounts for about 42% of the company's EBITDA as of the second quarter of 2024, currency translation could positively affect cash flows. This is due to other local currencies appreciating against the MXN, which could potentially offset the negative impacts on capital expenditures and interest payments. The depreciation could also benefit the company's tax base, similar to the situation in 2020 and 2021.
Despite these factors, and even after increasing the estimate for America Movil's equity free cash flow (EFCF) to 83 billion MXN from 79.9 billion MXN, the analyst pointed out that the current next twelve months (NTM) equity yield in MXN, which stands at 8.3% (or 7.5% in USD), is lower than the yield on MXN-denominated bonds.
This suggests that investing in bonds might be more appealing than equity at the moment. Other telecommunications companies such as TIGO and TIMB offer higher equity yields and a larger premium over bonds, which further diminishes the appeal of America Movil's stock.
The report also expressed concerns regarding the regulatory environment and market competition in Mexico, which could continue to affect investor sentiment. There had been speculation about the potential dissolution of the Federal Telecommunications Institute (IFT), but recent information indicates that such a development is not imminent. This could lead to regulatory challenges, especially given the current state of the judicial system after recent reforms.
In other recent news, America Movil has reported mixed Q2 results, with a net loss amid foreign exchange losses despite a 1.5% year-on-year increase in second-quarter revenue and a rise in its subscriber base. The company is also exploring a joint asset purchase with Telefonica (NYSE:TEF) from WOM, a significant player in the Chilean mobile market. This strategic move could potentially increase America Movil's market share in Chile to 39%.
In the realm of analyst ratings, Citi reaffirmed a Buy rating on America Movil, citing potential market share gains in Chile. Meanwhile, Goldman Sachs upgraded America Movil to a Buy rating, identifying competitive trends and new capital expenditure guidance as potential catalysts. However, Scotiabank reduced its price target for America Movil to $18.90, maintaining a Sector Perform rating, due to concerns about a slowdown in wireless growth in Mexico.
In addition, the Slim family, controlling shareholders of America Movil, recently acquired a 3.16% stake in British Telecom, potentially indicating a diversification strategy. Despite challenges such as a cybersecurity incident in Central America leading to the disconnection of 584,000 subscribers, America Movil's growth is being driven by its broadband and 5G network expansions in Mexico.
InvestingPro Insights
As we consider the financial health and market performance of America Movil, real-time data from InvestingPro provides additional insights. With a market capitalization of $51.45 billion and a P/E ratio of 30.47, America Movil stands as a significant entity in the telecommunications sector. The P/E ratio, which adjusts slightly higher to 31.69 when looking at the last twelve months as of Q2 2024, suggests a valuation that investors should weigh against the company's near-term earnings growth.
One of the InvestingPro Tips highlights that America Movil has been consistently returning value to its shareholders, having raised its dividend for 8 consecutive years and maintained dividend payments for 24 consecutive years. This is particularly noteworthy in the context of the Scotiabank report, which compares the equity yield of America Movil's stock to the yield on MXN-denominated bonds. The dividend yield as of the data provided stands at 3.19%, reflecting the company's commitment to shareholder returns.
Moreover, the company's stock is trading at a low P/E ratio relative to near-term earnings growth, and valuation implies a strong free cash flow yield. This may appeal to investors looking for companies with robust cash-generating capabilities. For those interested in further analysis, there are additional InvestingPro Tips available, which can be explored at https://www.investing.com/pro/AMX.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.