On Jul 18, 2017, Mexican telecom behemoth, America Movil SAB (NYSE:AMX) was downgraded to Zacks Rank #5 (Strong Sell).
The company follows an aggressive promotional strategy, which includes discounts and subsidized offers to increase its smartphone sales figures, which is driving down margins. The expansion of low margin businesses like PayTV and TracFone remains detrimental to its growth.
America Movil’s Brazilian operation, Claro, faces competitive threat from Vivo, owned by Telefonica (MC:TEF) Brazil SA (VIV). Also, U.S. telecom giant, AT&T Inc.’s (NYSE:T) entry into the Mexican telecom industry with the acquisition of Gurpo Iusacell and Nextel de Mexico was a major setback for the company. Moreover, AT&T has climbed to the highest position in the U.S. pay-TV market with the acquisition of satellite-TV operator DIRECTV. This may impact America Movil’s market position as DIRECTV is an existing competitor of the company in Mexico and other Latin American countries.
The recent imposition of antitrust rules against the company by the Mexican telecom regulatory authority, the Federal Telecommunications Institute (IFT), was a major setback. The IFT wants America Movil to detach a large part of its fixed-line infrastructure. Notably, the company has both wireline (Telmex) and wireless (Telcel) operations. If regulatory concerns and competition continue to mount, its top and bottom lines could be dented further.
Also, America Movil’s cash and liquidity position seems to be a major concern. Its accumulating debt and decreasing cash flows may pose problems for credit ratings going ahead. However, the company’s focus on shifting its base from Mexico to Brazil in the wake of declining profits is viable.
Price Performance
Despite such negatives, the price performance of America Movil was impressive over the past six months. The stock has gained 33.0%, outshining the Zacks categorized Wireless Non-US industry’s increase of 4.3% over the same time frame.
Stocks to Consider
Investors interested in broader Computer and Technology space may consider BlackBerry Limited (NASDAQ:BBRY) and Orange (NYSE:ORAN) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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