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America Movil Shows Promise With Core Focus, Risks Remain

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On Jun 25, we issued an updated research report on America Movil, S.A.B. de C.V. (AMX - Free Report) , one of the largest wireless firms in Latin America.

American Movil has launched 4.5G networks in Brazil, Mexico, Austria and Dominicana that can deliver speed up to 10 times faster than 4G, enabling subscribers to experience voice and video in high definition. This new platform will enable the company to connect millions of devices simultaneously using Narrowband-IOT and Cat-M technologies to expand the universe of the Internet of Things. American Movil is the only carrier to offer 4.5G in the aforementioned countries and will likely introduce it in the rest of its operating countries in 2018.

America Movil’s principal markets are Mexico and Brazil, the two largest economies in Latin America. The company’s biggest subsidiary, Telcel, is reportedly the largest wireless service provider in Mexico. America Movil operates in Brazil through its subsidiaries Claro and Americel. Claro ranks second among the wireless carriers in the country. Significant presence in these strategic markets with a large pool of subscriber base augurs well for long-term growth of the company.

Operating through several other subsidiaries, America Movil is also a leading wireless provider in Colombia and Guatemala. Moreover, the company has acquired wireless operators in El Salvador, Puerto Rico, Jamaica and Nicaragua, representing relatively new markets. In the United States, the company owns Tracfone, a fast-growing prepaid wireless service provider based in Miami. Tracfone is one of the largest wireless carriers in the country.

In order to further extend its footprint and better serve customers, America Movil has decided to roll out the services of Claro in the United States. Consequently, Telmex USA, L.L.C. that operates as a subsidiary of the company in the United States will be renamed as Claro Enterprise Solutions, LLC.

Claro Enterprise Solutions will primarily focus on enterprise solutions of businesses of all sizes — from small companies to large multinationals. Based in Florida, the subsidiary will have a significant presence throughout the country. The strategic move will expand the global presence of Claro and facilitate America Movil's objective to drive innovations and bring them to the market through integrated communication and information technology services. At the same time, customers will also benefit from the seamless integration of America Movil’s global network, operations and service delivery across the Americas and Europe.

However, its aggressive promotional strategy to increase penetration in the smartphone market lowers margins, affecting overall profitability of the company in the near term. Moreover, increased competition from other established players in the market is likely to further erode margins.  

In addition, a wave of industry consolidation through mergers and acquisitions has reduced the competitive market dynamics and has led to oligopolistic markets. The company’s Brazilian operations are being challenged by Vivo while its strict switching policy has led to massive customer churn in Peru and Ecuador.

Nevertheless we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock, which has outperformed the industry in the past year with an average loss of 0.9% compared with a decline of 12.9% for the latter.

Better-ranked stocks in the industry include Comtech Telecommunications Corp. (CMTL - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Motorola Solutions, Inc. (MSI - Free Report) and Ubiquiti Networks, Inc. (UBNT - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech Telecommunications has a long-term earnings growth expectation of 5%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 123.7%.

Motorola has a long-term earnings growth expectation of 8%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 12.1%.

Ubiquiti Networks has a long-term earnings growth expectation of 18.6%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 8.9%.

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