America Movil (
) and Grupo Televisa (
) both dropped in Wednesday trading as a result of
new legislation designed to further liberalize
the Mexican telecom sector. Is now the time to pick up America
Movil at a discount?
[caption id="attachment_64865" align="alignright" width="199"
caption="Carlos Slim has benefitted from America Movil's monopoly
Under previous administrations, companies in the Mexican telecom
sector were allowed to operate as monopolies and/or duopolies. This
advantageous operating environment for companies has bolstered
profits for America Movil and Grupo Televisa for decades, rocketing
America Movil owner Carlos Slim to the position of the world's
However, recently-elected President Enrique Pena Nieto is keen
on reining in these monopolies and duopolies; the lack of
competition in the Mexican telecom sector alone reportedly costs
the country's citizens $20 billion a year.
While unequivocally a step in the right direction for the
Mexican consumer and the economy (
) as a whole, these liberalization measures will assuredly
adversely affect companies in the Mexican telecom sector like the
aforementioned America Movil.
While America Movil has expanded its operations into most of
Latin America, including substantial operations in Brazil and
Colombia, the company earns a disproportionate share of its revenue
from Mexico thanks to its advantageous pricing power. America Movil
currently has a 73% share of Mexican wireless users.
This dearth of competition allows America Movil increased
profitability in Mexico; on a per customer basis, Mexico makes
roughly 35% more on its Mexico operations
than its Brazilian operations, as the latter has a more competitive
As a result of increased liberalization, expect the company's
profit margins to erode in Mexico due to increased competition from
new entrants. Going forward, the company will likely remain
profitable, but investors can expect to model in more modest
profits from America Movil's Mexican operations.
Much of this bad news has already been priced into the stock;
however, the trend in America Movil indicates further downside
still. Until this stock bottoms, traders should look to play
America Movil to the short side. As for investors, we don't want to
try and catch a falling knife, but once this stock finds a bottom,
we could potentially see a lot of value in this beaten-down Mexican