America Movil Should Benefit from Peso Resurgence

Currencies can wreak havoc on a stock. America Movil (AMX) has been clobbered by the weak peso and stronger dollar and real. Small wonder. AMX must bring its earnings from all over the Western Hemisphere back to Mexico. The peso hasn't been worth much going from 10 pesos/dollar in August to 15.41 on March 2nd.

The Brazilian real gained 10% against the peso from October to March. Last quarter, AMX had a more than decent quarter piling on 10 million new subscribers. Most of those customers came outside of Mexico. Three million, for instance, from Brazil. The earnings though got gored by forex losses. That quarter AMX took a 14 billion peso foreign exchange loss. Even with that hit, the company managed a net income rise of 14.5% and EPS increase over 19%. Unfortunately, the strong dollar exacted a further blow dropping ADR EPS 1.8%.

The trajectory of the peso has begun to reverse. The left for dead peso has been coming back against the dollar and other currencies. It's even been strengthening against the Brazilian Real, something equally surprising.

AMX had been devastated by Mexican currency woes and should benefit from the peso's resurgence. The peso appears to be gaining traction against the real and dollar, something that should result in a strong showing for AMX as 2009 goes on.

Disclosure: long AMX, no position FXM

Comments

[Chris B:]

Great companies are not made on the basis of currency conversions, they become great through value creation.

In international investing, it's hard enough to identify and do your dilligence on opportunities such as AMX. There's no need to add a layer of complexity to the analysis by worrying about whether the Peso or Brazilian Real will exchange higher or lower in the short term future. For short-term trades, you'd have to be right about both the company AND the Forex markets. Forget it. You're better off with performance metrics that exclude the effects of foreign exchange.

After all, currency hedging is one of your objectives in buying international stocks, right? If you knew what the Peso or Real would do a few months from now, you could make a lot more money in the Forex markets.

Apr 07 04:58 PM

[Stephen Ros...:]

Chris B: AMX has managed their business exceedingly well in a tough economy but has been brutalized by adverse forex. They got hit twice: first by exchanging profits into weak pesos and second by exchanging pesos into far stronger dollars for the ADR. That has changed which should make for a much stronger year. In this case, forex is critical. If forex problems had not occurred, that $14 billion dollar forex charge would have disappeared more than doubling their earnings.
Unfortunately, when I wrote the piece, the tables and graphs did not transfer over. You can see them under my instablog at Seeking Alpha.

Apr 09 12:30 PM

[Fletcher Wh...:]

Having studied and lived in Argentina for 4 months, I realized that like much of Latin America, the cell phone industry is subpar. With globalization and growth of Latin America, I think AMX is a solid long term play for anyone interested in diversitying their portfolio with Latin America.

Apr 14 04:04 PM

[Paul Harper:]

Interestingly enough, AMX has just carried out a small debt issue in Chile, where the currency is still strong against the dollar & peso ... canny move

Apr 18 03:00 PM