On Jan 15, we reaffirmed our Neutral recommendation on
). While the company's top line surpassed the Zacks Consensus
Estimate and the year-ago quarter, the bottom line missed our
expectation and deteriorated considerably year over year.
Currently, the Zacks Consensus Estimate for fourth quarter
earnings per share is pegged at 48 cents, with an annualized
growth rate of 58.33%.
Increased penetration of 3G data services in Mexico continues
to catapult data revenue growth.
) iPhone has enabled America Movil to counter competition from
the likes of
NII Holdings, Inc.
) in a more effective manner while boosting customer adoption of
3G services, thereby stimulating ARPU (average revenue per user)
growth. The company launched fourth-generation (4G) mobile
services in 11 cities across Mexico. Further, America Movil
launched LTE services in Brazil and currently covers 18 cities.
We expect the company to perform well in Brazil and Mexico as it
continues to focus on winning more contract subscribers, which in
turn will minimize churn.
Inflationary conditions have impacted economic factors in
Mexico and Brazil, and could challenge the company's valuation.
Interest rate fluctuations are likely to influence investment and
consumption patterns in these markets. This may also affect the
demand for the company's services and its financial performance,
to some extent. Further, slow subscriber growth and an
unfavorable regulatory environment could mar its market value.
Currently, the biggest challenge that surrounds America Movil is
the New Bill proposed by Mexican President Enrique Pena Nieto
that highlights several measures to reform the country's telecom
and television industry. The main objective of introducing this
bill is to bring more uniformity and transparency into the sector
and curb concentration of power among predominant players,
dictating market behavior. Besides setting up a new
regulatory body, the bill stresses on the implementation of the
asymmetric regulations that faced severe condemnation by America
The rule implies that predominant players like America Movil,
controlling the majority of the market share, will have to pay
higher mobile termination rates (MTRs) to smaller peers but
receive lower fees from them for network interconnection. In May
2013, the bill received approval from Mexico's Congress and can
affect the operations of America Movil.
As a result, we remain cautious over the near-term performance of
the company. AMX currently carries a Zacks Rank #3 (Hold).
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