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What's in Store for America Movil (AMX) in Q2 Earnings?

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Mexican telecom behemoth, America Movil SAB (AMX - Free Report) , is slated to report second-quarter 2017 results, after market close on Jul 18.

Last quarter, America Movil delivered a positive earnings surprise of 65.62%. However, the company’s earnings lagged the Zacks Consensus Estimate in three of the previous four quarters, with an average miss of 46.89%.

Despite such negatives, the price performance of America Movil was impressive over the past three months. The stock has gained 15.57%, outshining the Zacks categorized Wireless Non-US industry’s increase of 3.12% over the same time frame.

Let’s see how things are shaping up for this announcement.

Factors at Play

America Movil’s aggressive promotional strategy which includes discounts and subsidized offers continues to hurt its margins. Also, the company’s Brazilian operation, Claro, faces competitive threat from Vivo, owned by Telefonica Brazil SA (VIV - Free Report) . Meanwhile, U.S. telecom giant AT&T Inc.’s (T - Free Report) entry into the Mexican telecom industry with the acquisition of Gurpo Iusacell and Nextel de Mexico was a major setback for the company.

America Movil is focused on shifting its base from Mexico to Brazil through the purchase of Oi S.A. in the wake of declining profits. America Movil’s cash and liquidity position are causes of concern.

The recent imposition of antitrust rules against the company by the Mexican telecom regulatory authority, the Federal Telecommunications Institute (IFT), was a major setback. The IFT wants America Movil to detach a large part of its fixed-line infrastructure. Notably, America Movil has both wireline (Telmex) and wireless (Telcel) operations. If regulatory concerns and competition continue to mount, the company’s top and bottom lines could be dented further.

On the other side, America Movil’s continuous participation in spectrum auctions for the deployment of 4G LTE services and expansion of 3G footprint looks good. Meanwhile, the company’s decision to reduce its fixed-line-to-mobile call rates in a phased manner reflects its efforts to comply with regulations.

The company’s iPhone offering has enabled it to counter competition effectively. This has boosted customer adoption of 3G services and stimulated ARPU (average revenue per user) growth. The company launched fourth-generation (4G) mobile services in 11 cities across Mexico.

Furthermore, the company has introduced LTE services in Brazil where it currently covers 18 cities. We expect the company to perform well in Brazil and Mexico in the to-be-reported quarter as it showed continued focus on winning more contract subscribers, which in turn will minimize churn.

America Movil’s agreement with its closest rival Telefonica SA to offer nationwide mobile roaming services looks good. The company currently commands more than 66% of Mexico’s wireless market while Telefonica follows with over 20% share.

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 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 32 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: America Movil has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

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

Key Picks

MSCI Inc. (MSCI - Free Report) from the Zacks categorized broader Computer and Technology sector, which houses America Movil, has the right combination of elements to post an earnings beat in its second quarter 2017 results on Aug 3, 2017. MSCI has an Earnings ESP of +2.22% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Its earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, with an average beat of 6.32%.

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