Telecom in Argentina: Wireless Is the Way to Go

Includes: AMX, NIHD, TEO
by: Emerging Money

Unlike the United States, land line infrastructure is not as well developed in Argentina, making the logical choice for consumers to have a wireless phone as their main communications channel.

AMX: America Movil, based in Mexico, is a major carrier throughout the region. Fund managers would consider it a large-cap blend play.

AMX seems fairly valued with a PEG of 1.5516, in line with the communications industry median of 1.58. However, the company is slightly rich on a PE basis, bringing 16.2144 compared to the industry median of 13.56.

Net margins of 18.12% are among the strongest of any peer.

AMX's debt to total capital ratio of 45.89% is in line with the industry norm despite increased debt taken on to finance 3G build-out. With an interest coverage ratio of 10.61 and a quick ratio of 1.46 the company should be able to comfortably repay its debt.

Short interest is a minimal 0.72% and institutions hold 35.33% of the overall float.

Bottom line: A giant in the global telecom industry and a company driven by a relentless competitive agenda to expand throughout Latin America and the world.

TEO: Telecom Argentina is the only truly "Argentine" name on this list. It should be classified as a mid-cap value play.

TEO seems inexpensive by any metric, with a PEG value of 1.34 and a PE of 11.264.

The company is also one of the more profitable companies in the sector with a net margin of 11.99% and gross margins in line with its group.

Debt to total capital ratio at 13.60% is in line with the industry's norm. However, the company's quick ratio has a value of 0.59, which shows that there are not enough liquid assets to satisfy current liabilities in the event that operating earnings are unable to cover existing obligations.

Short interest is a very low 0.35% and institutions have 17.88% of the float.

Bottom line: Although TEO seems to be inexpensive, the debt-capital ratio outweighs the strong profit margin and makes the security a riskier trade.

NIHD: U.S.-based Nii Holdings is a leading wireless vendor to Argentina and the rest of Latin America. The stock would be classified in the mid-cap growth category.

The company seems a little rich with a PEG of 1.7018 -- a little above the industry median -- and a PE of 21.5707.

NIHD converts an above-median percentage of its revenues to profits, with an operating margin of 15.71%.

Debt to total capital ratio of 55.13% is in line with the industry norm despite an increase in debt over the last year. With an interest coverage ratio of 3.5 and a quick ratio of 2.09, NIHD should be able to comfortably repay its debt.

Short interest is 1.62% and institutions hold a whopping 98.01% of the float.

Bottom line: NIHD is rolling out 3G in Mexico and through Latin America. It will cost more, but more consumers are already moving to the smartphones. To minimize risk, consider looking at options vertical call spread or a deep in the money NOV call if you think NIHD will report positive earnings. Heaviest open interest is at the 40 strike in NOV, DEC and JAN with earnings being reported on Oct 28. Caution is recommended as the stock as broken the trend line with a gap down on Oct 14, which appears to start its back fill. Remember: with options you define your risk and exactly how much money can lose.

Disclosure: No positions