What's in Store for America Movil (AMX) in Q1 Earnings?

Mexican telecom behemoth America Movil SAB AMX is slated to report first-quarter 2017 results, after market close on Apr 25.

Last quarter, America Movil posted a negative earnings surprise of 125.00%. Moreover, the company’s earnings lagged the Zacks Consensus Estimate in each of the previous four quarters, with an average miss of 80.60%.

Despite such negatives, the price performance of America Movil was impressive over the past three months. The stock gained 13.9%, outshining the Zacks categorized Wireless Non-US industry’s gain of 0.8% over the same time frame.

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

Factors at Play

America Movil, which has been ruling the Mexican market for quite some time now, has been witnessing a decline in its profit margin in the region. Stringent regulatory measures and intensifying competition were primarily behind the dismal performance. Further, the company faces tough competition from market behemoths like Telefonica SA TEF in Brazilian wireless market and AT&T Inc. T in the Mexican telecom industry. Thus, if regulatory concerns and competition continue to mount, the company’s top and bottom lines could be dented further.

America Movil is also focused on shifting its base from Mexico to Brazil through the purchase of Oi S.A. in the wake of declining profits. The company’s cash and liquidity position also seem to be major concerns. Another major setback was the recent imposition of antitrust rules against the company by the Mexican telecom regulatory authority – the Federal Telecommunications Institute (IFT).

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 in a more effective manner while boosting customer adoption of 3G services, thereby stimulating 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. Notably, America Movil currently commands more than 66% of Mexico’s wireless market while Telefonica comes second 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 both 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.

America Movil, S.A.B. de C.V. Price and EPS Surprise

 

America Movil, S.A.B. de C.V. Price and EPS Surprise | America Movil, S.A.B. de C.V. Quote

Key Pick

T-Mobile US Inc. TMUS from the Zacks categorized broader Computer and Technology sector has the right combination of elements to post an earnings beat when it expectedly reports first-quarter 2017 results on Apr 24. T-Mobile US has an Earnings ESP of +2.86% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s earnings surpassed the Zacks Consensus Estimate in each of the previous four quarters, with an average beat of 75.66%.

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