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On Tuesday, Citi reaffirmed its Buy rating on America Movil (NYSE:AMX) with a price target of $20.50. The company is currently exploring a joint asset purchase with Telefonica (NYSE:TEF) from WOM, a mobile market player in bankruptcy proceedings in the United States. WOM has a significant presence in the Colombian and Chilean mobile markets, with 8% and 21% market shares respectively.
America Movil, which operates under the brand Claro, is considering this acquisition to strengthen its position in Chile, where it currently holds an 18% market share. The potential deal could elevate Claro to a 39% market share in Chile, making it the main player without dominating the market. This move is seen as a strategic effort to create a more balanced market environment.
The financial implications of the deal are believed to be manageable for America Movil. The company is expected to continue its share buyback program, supported by net working capital releases in the second half of 2024. However, the acquisition might limit the anticipated expansion of the program, which is projected to reach $2 billion on a last twelve months basis, compared to $1.5 billion as of July.
The collaboration between America Movil and Telefonica for this acquisition highlights the ongoing consolidation efforts in the telecommunications industry. The companies are currently in the non-binding agreement phase, evaluating the assets from WOM that are up for grabs due to the bankruptcy filing. The focus for America Movil is on the Chilean operations, where the company sees an opportunity to significantly increase its market share and presence.
In other recent news, América Móvil, a leading telecom services provider, reported mixed Q2 results, with a net loss amid FX losses despite a rise in its subscriber base and a 1.5% year-on-year increase in second-quarter revenue. Scotiabank, in light of the financial performance, reduced its price target for América Móvil to $18.90 from the previous $19.00, maintaining a Sector Perform rating. The firm also noted concerns about a slowdown in wireless growth in Mexico, suggesting increased competitive pressure.
In response to América Móvil's acquisition of control over its Chilean joint venture, ClaroVTR, Citi reaffirmed its Buy rating and a price target of $22.50. This strategic move is expected to enhance the company's presence and synergies in the Chilean telecommunications market. Meanwhile, Goldman Sachs upgraded América Móvil to a Buy rating, citing competitive trends and new capital expenditure guidance as potential catalysts for a more favorable investment profile.
The Slim family, controlling shareholders of América Móvil, have also acquired a 3.16% stake in British Telecom, potentially signaling a diversification strategy. Despite challenges such as a cybersecurity incident in Central America leading to the disconnection of 584,000 subscribers, América Móvil's growth is being driven by its broadband and 5G network expansions in Mexico. The company anticipates continued revenue growth across most markets, driven by bundling and competitive packages.
InvestingPro Insights
As America Movil (NYSE:AMX) eyes strategic growth through potential acquisitions, it's important for investors to consider the company’s financial health and market position. According to InvestingPro data, America Movil boasts a robust market capitalization of $51.44 billion and is trading at a P/E ratio of 30.47, indicating investor confidence in its earnings potential. Notably, the company has a strong gross profit margin of 61.56% over the last twelve months as of Q2 2024, reflecting its operational efficiency.
Investors may also find encouragement in the company's consistent shareholder returns, with America Movil having raised its dividend for 8 consecutive years and maintained dividend payments for 24 consecutive years. The current dividend yield stands at 3.25%, which is a key consideration for income-focused investors. Additionally, the company’s management has shown confidence in its growth by aggressively buying back shares, a move that often signals a belief in undervalued stock price and a commitment to enhancing shareholder value. For those interested in exploring further, there are over 10 additional InvestingPro Tips available, providing deeper insights into America Movil's performance and prospects. These tips are accessible through the InvestingPro platform.
Overall, the combination of America Movil's financial stability, management's strategic actions, and its potential market share increase in Chile positions the company as a prominent player in the Wireless Telecommunication Services industry. With analysts predicting profitability this year, America Movil's current and prospective investors have several positive indicators to consider when evaluating the stock.
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