America Movil: Improved Forex Should Boost Earnings

Few American investors have ever heard of America Movil (AMX), the colossal mobile telephone giant. It's huge. America Movil has 187 million wireless subscribers easily dwarfing both ATT's (T) and Verizon's (VZ) networks. Combined, ATT and Verizon have 164 million mobile customers. A startling one out of every 35 people in the world subscribe to AMX (and that includes babies). Despite its size, the company has strong growth. AMX added 27 million cell phone users over the year, a 17% growth.

I recommended AMX on April 7 on Seekingalpha when it was trading at $29 because of the resurgence of the Mexican peso. AMX now is priced at $37.66. The currency story has gotten even better which should help the company boost its earnings.

Last quarter, net income was up 18.7% despite an unfavorable forex of 2.4 billion Mexican pesos (that's a lot of pesos). AMX brings its revenues from all over the Americas, Brazil, Columbia, and even the U.S. back to Mexico where it is changed into pesos. The last two quarters AMX had difficult exchange rates. The ADRs were hurt, however, far worse as the very weak Mexican peso couldn't buy many U.S. dollars. While net income in pesos was up 18.7%, its ADRs were down 4.9%.

Currencies are tilting AMX's way.

The Brazilian real is gaining strength against the peso and dollar. Brazil is AMX's biggest market after Mexico.

click to enlarge

Columbia, another big player, has a currency that is growing stronger adding to the play.

And, of course, the Mexican peso is firming up against the U.S. dollar.

In addition, to add icing to the AMX cake, the company's largest debt is in U.S. dollars. When AMX reports next quarter, that number will diminish in terms of pesos.

The improvement in forex will magnify AMX's strong subscriber and revenue growth and boost earnings when the company reports next quarter.