Can Telefonica Brasil (VIV) Q1 Earnings Pull A Surprise?

Brazilian telecom carrier Telefonica (MC:TEF) Brasil SA (NYSE:VIV) – a subsidiary of Spanish telecom giant Telefonica SA (NYSE:T) – is scheduled to report first-quarter 2017 results on May 9, after market closes.

In the previous quarter, the company posted a positive earnings surprise of 15.79%. Telefonica Brasil’s earnings lagged the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 8.85%.

Over the last three months, shares of Telefonica Brasil witnessed a loss of 2.7% while the Zacks categorized Diversified Communication Services industry gained 7.8%.

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

Factors Likely to Influence this Quarter

Telefonica Brasil continues to rule the Brazilian wireless market following the establishment of Vivo as a commercial brand for all services. The company’s increased investments in technology upgrades and broadband network infrastructure has helped it to sustain in a competitive and rapidly changing market. Telefonica Brasil continues to fortify its leadership in data and post-paid segments through attractive data plans and intends to launch more such schemes. The company’s efforts have been drawing customers, leading to subscriber growth and higher data usage. In the last reported fourth quarter of 2016, the company’s mobile subscriber base touched 73.778 million (up 0.7% year over year). In the reported quarter, the company added a net 891,000 postpaid mobile subscribers. We expect to see the similar uptrend in the to-be reported quarter.

On the flip side, Telefonica Brasil continues to face numerous hurdles in its fixed line voice business and wireless business. The company’s fixed line voice business is facing competition from alternative service offerings like wireless telephony, VoIP (voice over Internet Protocol) and cable services (voice, video and broadband). Customers in the wireless segment are opting for discounted calling rates offered by national wireless operators. The combined company operates in a highly regulated industry and is subject to changes in regulatory measures.

Further, the company shares competitive space with the likes of America Movil SAB (NYSE:AMX) in Brazil. U.S. telecom giant AT&T Inc. (NYSE:T) may also enter in the Brazilian market in future further intensifying the competition.

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%, with Most Accurate estimate and the Zacks Consensus Estimate pegged at 20 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Telefonica Brasil 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 Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Pick

Here is a company in the Zacks categorized broader Utilities sector, which houses Telefonica Brasiland has the right components to deliver an earnings beat this quarter.

Pattern Energy Group Inc. (NASDAQ:PEGI) , which will report first-quarter 2017 results on May 9, has an Earnings ESP of +250.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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