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NEW YORK (TheStreet) -- Telefonica  (TEF) - Get Telefónica SA Report is reportedly in talks over a possible deal in Mexico, where it has been looking for acquisitions for months to strengthen its position against former monopoly American Movil (AMX) - Get America Movil SAB de CV Report, the company said, addiing that it hadn't reached any agreement.

Any deal was not likely to be imminent, sources told Reuters

The web site El Confidencial reported Telefonica was close to acquiring Mexico's third largest wireless telecoms company Iusacell, worth up to $4 billion, according to sources.

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Telefonica has about 20% of Mexico's cellphone market while Iusacell has about 8% percent, well behind American Movil which has about 70%, Reuters said. 

TheStreet Recommends

Shares of Telefonica are slightly higher in morning trade.

TheStreet Ratings team rates TELEFONICA SA as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate TELEFONICA SA (TEF) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, notable return on equity and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, TELEFONICA SA has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Although TEF's debt-to-equity ratio of 2.61 is very high, it is currently less than that of the industry average. Along with the unfavorable debt-to-equity ratio, TEF maintains a poor quick ratio of 0.72, which illustrates the inability to avoid short-term cash problems.
  • The gross profit margin for TELEFONICA SA is currently lower than what is desirable, coming in at 30.12%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.65% trails that of the industry average.
  • You can view the full analysis from the report here: TEF Ratings Report

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