Shares of cellular giant America Movil
Despite the run-up, I believe that shares of America Movil will continue to outperform the market in 2007 because of continued rapid subscriber growth, the company's success in entering new markets, the still-low cellular penetration rate in its target markets, and valuation that is attractive both on an absolute basis and vis-a-vis its peers.
Let's take a look at these various metrics, shall we?
Subscriber growth
After adding a net 6.2 million subscribers in the third quarter ended Sept. 30, America Movil boasts a total of roughly 114 wireless subscribers, up 5.7% from the second quarter, and 36% ahead of the 84 million customers recorded in last year's period.
While America Movil is projecting a marked deceleration in subscriber growth in 2007 as the law of large numbers catches up to it, the company's goal of adding a net 22 million subscribers still represents an increase in its customer base of roughly 18% from this year's projected total of 120 million subscribers. Since the company has historically been conservative in its projection, I suspect that the net subscriber addition is likely to be substantially higher, especially since America Movil continues its march into new markets.
I'd hasten to point out that while subscriber growth is slowing slightly, the company has been able to pare its expenses as well, with EBITDA margins coming in at 36.8%, up from 32.3% in last year's quarter.
New markets
At the beginning of 2006, America Movil had wireless operations in 11 markets. Today, the company operates in 14 markets with the three new operations -- Chile, Paraguay, and Peru -- boasting a subscriber base of 5.2 million as of the end of the third quarter, up an average 12% sequentially and more than 48% ahead of last year's total of 3.5 million customers.
This ability to successfully target, integrate, and grow acquisitions should continue to prove beneficial to shareholders, now that the company is set to expand into two new markets through its recent agreement to purchase Verizon's
Low penetration rates
America Movil is also sitting in the catbird seat in terms of operating in an area where cellular penetration rates are low compared with the global norm. At present, penetration rates in Latin America stand at around 43% -- significantly below the 90%-plus rate of Western Europe and the 70%-plus rate in the U.S. -- leaving ample room for organic growth. Let's not forget that Latin America's population is expected to grow 44% over the next few decades and reach roughly 805 million in 2005.
See what I mean about the investment thesis being intact? Well, the icing on the cake is America Movil's valuation.
Valuation
Despite the advance in shares over the year, America Movil's multiple has actually compressed as earnings skyrocketed. The stock now trades at approximately 14 times increased 2007 earnings estimates of $2.93, a 50% discount to its long-term projected growth rate. In contrast, other large wireless plays such as Vodafone
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Fool contributor Will Frankenhoff is enjoying his time writing for The Fool more than playing golf, reading The Financial Times, or taking a nap. He welcomes your feedback at [email protected]. He does not own shares in any of the companies mentioned above. Vodafone is an Inside Value recommendation. The Fool has a disclosure policy.
