Can Telefonica Brasil (VIV) Pull A Surprise In Q3 Earnings?

Brazilian telecom carrier Telefonica (MC:TEF) Brasil SA (NYSE:VIV) is expected to release third-quarter 2017 financial numbers on Oct 26.

Last quarter, Telefonica Brasil delivered a negative earnings surprise of 27.27%. Moreover, the company’s earnings lagged the Zacks Consensus Estimate in three of the trailing four quarters, with an average miss of 10.64%.

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

Factors at Play

Telefonica Brasil continues to be a top-ranked player in the Brazilian wireless market following the establishment of Vivo as a commercial brand for all services. The company continues to invest in technology upgrades and broadband network infrastructure expansion to remain competitive in a rapidly changing market. Telefonica Brasil witnesses long-term opportunities in the mobile business, mainly on the back of continuous expansion of subscriber base. The company continues to fortify its leadership position in both data and post-paid segments, evident from 34.683 million (up 9.7% y/y) postpaid subscriber count in second-quarter 2017. We look forward to a similar momentum in the upcoming quarterly results.

We believe that these factors have led to the company’s outstanding price performance over the past three months. Share price of Telefonica Brasil have returned 11.2% as against the industry’s loss of 2.6%.

However, Telefonica Brasil continues to suffer from the impact of wireless substitution, intense competition in fixed-line voice business and stringent regulatory measures. Telefonica Brasil's wireline business will suffer in future due to significant amount of line disconnections. Broadband competition will also continue to grow.

The company’s fixed-line voice business is facing threats 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 intense, while the long-distance market has matured. The company’s mobile business competes with Personal Mobile Service and fixed-line telecommunication and Internet access service providers. The combined company operates in a highly-regulated industry and is subject to changes in regulatory measures.

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 22 cents. You can uncover the best stocks to buy or sell before they’re reported with ourEarnings 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.

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 from the broader Utilities sector, which houses Telefonica Brasil, and have the right combination of elements to post an earnings beat this quarter.

BCE Inc (TO:BCE) has an Earnings ESP of +0.49% and holds a Zacks Rank #2. It will release third-quarter 2017 financial results on Nov 2. The company’s earnings have surpassed the Zacks Consensus Estimate in two of the previous four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TELUS Corporation (NYSE:TU) has an Earnings ESP of +4.91% and carries a Zacks Rank #3. It will release third-quarter 2017 financial results on Nov 9. The company’s earnings surpassed the Zacks Consensus Estimate in one of the previous four quarters.

Shenandoah Telecommunications Co (NASDAQ:SHEN) , has an earnings ESP of +300.00% and carries a Zacks Rank #3. It will release third-quarter financial results on Nov 6. The company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters.

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