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Despite facing severe regulatory challenges, America Movil S.A.B. de C.V. (AMX - Analyst Report), the largest wireless company in Latin America with over 300 million subscribers, continues to dominate the Latin American wireless market. The company remains benefited by its well-known brand, extensive distribution network, nationwide coverage and increasing subscriber base.

Moreover, America Movil still reaps benefits from the ongoing migration of voice traffic from fixed-lines to wireless and the continued adoption of smartphones, which are contributing to revenue growth.

Further, America Movil acquired Pay TV firm Net Servicos, the largest multi-service cable company in Latin America to solidify its position in Pay TV market. Going forward, the company also collaborated with Claxson Interactive Group to acquire DLA Inc. that adds video-on-demand service on cable-TV channels in Latin America.  Apart from Latin America, America Movil is also targeting emerging markets, such as Asia and the Middle East through partnerships with telecom Giants like AT&T Inc.

Thus, we expect the Company to focus more on a strategy of acquisition in a highly competitive telecom market in order to tap the opportunities in wireless services and pay-TV business. The company is also looking forward to assimilating a 21% stake in Telekom Austria AG, intensifying its foray into the European markets.

Despite the company’s consistent market share gains, we remain concerned about the regulatory pressures in Mexico, along with lower interconnection charges that are expected to limit the earnings growth this year.

Further, wireless sales in Brazil, the second largest market for the company, have become a drag on its profits given increased pricing competition and economic slowdown.

Apart from declining growth rates in the company’s two largest markets, Mexico and Brazil, we believe factors like acquisition expenses, operating costs on network investment, smartphone subsidies, and undisclosed pension costs will inevitably weigh on the near-term profitability.  In addition, the company faces stiff competition from rivals like Telefonica and Grupo Televisa, S.A.B. (TV - Analyst Report) in Latin America.

Weighing the pros and cons, we currently maintain a long-term Neutral recommendation on America Movil supported by a Zacks #3 Rank (Hold).

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