Brazilian telecom carrier Telefonica Brasil SA (VIV Quick QuoteVIV - Free Report) is slated to report second-quarter 2016 financial numbers after market close on Jul 29.

Last quarter, Telefonica Brasil posted a positive earnings surprise of 11.76%. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average beat of 2.70%. Let’s see how things are shaping up for this announcement.

TELEF BRASIL SA Price and EPS Surprise

TELEF BRASIL SA Price and EPS Surprise | TELEF BRASIL SA Quote

Factors at Play

Telefonica Brasil has scaled to the position of the leading telephone operator in Brazil following the establishment of Vivo as a commercial brand for all services. It continues to witness significant growth in its mobile business owing to strength in Data, Internet, VAS and other services. Additionally, the company is increasingly investing in technology upgrades and broadband network infrastructure to retain competitiveness in a rapidly changing market. The company also continues to fortify its leadership position in both data and post-paid segments through various attractive postpaid and prepaid data plans such as Vivo Sempre and Vivo Ilimitado and intends to launch more such schemes going forward. Such efforts are drawing customers, thereby leading to subscriber growth and higher data usage.

However, Telefonica Brasil’s fixed line voice business is facing intense competition from alternative service offerings like wireless telephony, VoIP (voice over Internet Protocol) and cable services (voice, video and broadband). Competition in the local phone market is also high while the long-distance market has matured. The combined company operates in a highly regulated industry and is subject to changes in regulatory measures. Brazil’s telecom regulator, Anatel, approved changes to the telecom law in Jun 2008, which has allowed fixed-line telecom companies to operate in more than one region of the country. This has resulted in a high number of acquisitions among operators in different regions which has intensified competition in the country, restricting profits at Telefonica Brasil’s fixed-line business.

 Earnings Whispers

Our proven model does not conclusively show that Telefonica Brasil is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Telefonica Brasil has an earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 19 cents.

Zacks Rank: Telefonica Brasil has a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some companies to consider instead as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Open Text Corporation (OTEX Quick QuoteOTEX - Free Report) , with an earnings ESP of +1.10% and a Zacks Rank #1.

Intel Corporation (INTC Quick QuoteINTC - Free Report) , with an Earnings ESP of +1.52% and a Zacks Rank #2.

Charter Communications Inc. (CHTR Quick QuoteCHTR - Free Report) , with an Earnings ESP of +404.76% and a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>