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Will America Movil (AMX) Disappoint Investors in Q4 Earnings?


America Movil AMX is scheduled to release fourth-quarter 2017 results on Feb 13, after the market closes.

The company portrays a negative earnings surprise history. Earnings lagged the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 29.17%

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

Factors Likely to Influence Q4 Earnings

America Movil’s efforts to systematically enrich spectrum portfolio with the acquisition of wireless spectrums instill optimism. The acquisition of 60 MHz of wireless spectrum (airwave) in the 2.5 GHz band from Grupo MVS (in July 2017) has enhanced the company’s high-speed data service. Last year, the company gained additional spectrums in Uruguay and Costa Rica. Moreover, the wireless roaming agreement with U.S. telecom giant AT&T T should help the company retain position in the Mexican market. Meanwhile, regulatory approval from Argentina's National Communications Agency (Enacom) to enter into the pay-TV market in Argentina is a major positive for the company. Notably, the company has already established wireless and wireline operators in Argentina. Joint venture with JCDecaux should boost the company’s out-of-home advertising businesses.

On the flip side, America Movil’s aggressive promotional strategies (like discounts and subsidized offers), aimed to increase penetration in the smartphone market, are concerns. These efforts may cause decline in margins with increased cost and expenses, affecting overall profits in the near term.

America Movil’s second-largest wireless market — Brazil — has become increasingly competitive. The company’s Brazilian operation (Claro) faces competitive threat from Vivo, owned by Telefonica Brazil SA VIV. Meanwhile, AT&T’s entry into the Mexican telecom industry with the acquisition of Gurpo Iusacell and Nextel de Mexico pose severe competition for the company. To this end, the company’s focus on shifting base from Mexico to Brazil in the wake of declining quarterly revenues looks viable.

Accumulating debt and decreasing cash flows may pose problems for the company’s credit ratings.

Price Performance

America Movil portrays an impressive price performance. In the past three months, the stock has rallied 2.9% against the industry’s decline of 4.1%.

When compared with the market at large, the stock compares favorably with the S&P 500 index’s rally of 1.4%.

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 35 cents. You can uncover the best stocks to buy or sell before they’re reported with the Earnings ESP Filter.

Zacks Rank: America Movil has a Zacks Rank #4 (Sell).

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

Key Pick

CenturyLink CTL from the broader Computer and Technology sector has the right combination of elements to post an earnings beat in fourth-quarter 2017 results, slated to release on Feb 14. CenturyLink has an Earnings ESP of +14.87% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s sales for fourth-quarter 2017 and first-quarter 2018 are estimated to increase 32.6% and 42.9%, respectively.

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