Zacks_Analysts' Blog : Neutral on America Movil - Analyst Blog

We are currently maintaining our long-term Neutral rating on America Movil (AMX). Currently, the stock has a Zacks #3 Rank (Hold).

We believe the strong wireless subscriber base along with accelerated market penetration of third generation (3G) services, smartphones and growing data services bodes well for the company. However, competitive pressure from Brazilian and Mexican rivals, a declining fixed-line subscriber rate, subsidies on handsets, reduced mobile termination rates (MTRs) and regulatory issues draw us to the sidelines.

In the fourth quarter ended December 2010, America Movil reported earnings per ADR of 97 cents, at par with the Zacks Consensus Estimate and improved 58.9% from 36 cents in the year-ago quarter. Total revenue was approximately MXN$161.9 billion ($13.1 billion), ahead of the Zacks Consensus Estimate of $12.0 billion and up 6% year over year.

The company witnessed sound growth driven by the surge in data services (revenues grew 40.4% year over year) coupled with increasing demand in wireless services (revenue increased 13% year over year). Additionally, the expanding subscriber base (a growth of 12.1% to 276.5 million subscribers) also fueled growth.

America Movil’s principal markets are Mexico and Brazil, the two largest economies in Latin America. Through its largest subsidiary Telcel, America Movil dominates the Mexican wireless market.

The company continues to benefit from the ongoing migration of voice traffic from fixed lines to wireless, which is contributing to revenue growth. Presently, the company expects revenue and EBITDA to increase 6% to 8% and 7% to 9%, respectively, over 2010–2014.

America Movil remains committed to improving service offerings to its customers and continues to invest aggressively to expand its cellular networks in Latin America. The company is also developing new generation broadband networks, both in the fixed and mobile platforms.

The company offers a vast range of wireless services including prepaid voice services and wireless data services such as SMS, MMS, group messaging, SMS notification and Internet access services. The company’s fixed-line services include voice, cable TV, Internet access and data transmission.

America Movil’s iPhone has given it an edge over its peers and boosted the adoption of 3G services. Additionally, The company also plans to launch fourth-generation mobile services in Mexico to address growing competition. However, the company still remains susceptible to the challenges from its biggest rivals such as Telephonica (TEF) in Mexico and Vivo (VIV) in Brazil.

As a result of tough competition, America Movil has lost a substantial subscriber base in these regions. Moreover, higher subsidies for 3G handsets, reduced MTRs and changes in the billing scheme to per second from per minute are likely to put pressure on the company’s average revenue per unit and margins in the near future.