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America Movil (AMX) Q2 Earnings: What's in the Cards?

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Mexican telecom behemoth America Movil SAB (AMX - Free Report) is slated to report second-quarter 2016 results, after market close on Aug 1.

Last quarter, America Movil posted a negative earnings surprise of 69.23%. Moreover, the company’s earnings lagged the Zacks Consensus Estimate in all of the previous four quarters, with an average miss of 59.18%. Let’s see how things are shaping up for this announcement.

AMER MOVIL-ADR Price and EPS Surprise

AMER MOVIL-ADR Price and EPS Surprise | AMER MOVIL-ADR Quote

Factors at Play

America Movil operates in a highly competitive wireless market of Mexico where it faces tough competition from market behemoths like Telefonica SA (TEF - Free Report) and AT&T Inc. (T - Free Report) . Moreover, the company follows an aggressive promotional strategy to expand its reach in the smartphone market. The company is also looking to boost smartphone sales through promotional discounts and subsidized offers. However, these efforts may curtail margins and mar overall profits. In addition, the expansion of low-margin PayTV and TracFone businesses might prove to be a drag for the company.

America Movil is expected to witness a downward trend in profits in Mexico in the second quarter of 2016 as well. Meanwhile, the company coughed up $1.1 million to settle a U.S. investigation for violating foreign ownership and control limits.

Nevertheless, America Movil controls nearly 68% of the market while the IFT is trying to restrict the maximum hold of a company in the market to 50%. Moreover, the IFT granted concessions for the 1710-1780 MHz/2110-2180 MHz AWS frequency bands to America Movil SAB. The company’s decision to reduce call rates from land lines to mobile phones, effective Aug 1, 2016, is expected to be a positive for the company.

Earnings Whispers

Our proven model does not conclusively show that America Movil 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: America Movil has an earnings ESP of +12.50%. This is because the Most Accurate estimate stands at 27 cents while the Zacks Consensus Estimate is pegged at 24 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: America Movil has a Zacks Rank #5 (Strong Sell). Please note that 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.

Stock to Consider

Here is a company to consider instead as our model shows that it has the right combination of elements to post an earnings beat this quarter.

CDK Global, Inc. , with an Earnings ESP of +4.26% and a Zacks Rank #2.

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