On Jun 27, 2014, we issued an updated research report on America Movil (AMX). The company’s bottom line missed the Zacks Consensus Estimate in the first quarter of 2014 and was also way below the year-ago number. However, the top line exceeded the Zacks Consensus Estimate and also increased on a year-over-year basis.
The Zacks Consensus Estimate for second quarter earnings is pegged at 46 cents per ADR, representing growth of 46.8% year over year.
America Movil continues to dominate the Latin American wireless market, mainly Mexico, Brazil and Columbia. The company has ventured beyond its legacy wireline and wireless services and has significantly expanded the Pay-TV platform, which remains as one of the highest revenue contributors.
We expect growth to accelerate further with America Movil’s entry into the lucrative video service market of Mexico. Regulatory issues have barred the company from entering the cable service market in Mexico as America Movil already boasts a flourishing phone business in the nation. However, with the new regulatory reforms in the Mexican telecom market now in place, America Movil might foray into the Mexican Pay-TV market, making way for future growth.
America Movil is developing new generation broadband networks, both in fixed and mobile platforms and plans to spend approximately $8–$9 billion over the next four years for the expansion of data networks. This development should boost data revenues of the company. Alcatel-Lucent (ALU) has already supplied an end-to-end 4G LTE network to Claro Uruguay, a division of America Movil.
On the flip side, we are worried over AT&T Inc.’s (T) plan to buy satellite-TV operator, DIRECTV (DTV), which may negatively impact America Movil’s market position. DIRECTV is an existing competitor of America Movil in Latin America. To obtain regulatory approval in Latin America for the DIRECTV deal, AT&T is selling off its 8.4% interest in America Movil. While the ongoing repurchase program allows America Movil to acquire AT&T’s shares sold in the open market, America Movil reportedly has no plans to buy any significant stake held by AT&T. Although, attainment of the 8.4% interest will boost returns for America Movil’s shareholders, it is likely to expand the debt position of the company, resulting in a higher leverage ratio.
America Movil currently has a Zacks Rank #3 (Hold).
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