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What's in Store for Telefonica Brasil (VIV) in Q4 Earnings?

Zacks Equity Research

Telefônica Brasil S.A. VIV is scheduled to report fourth-quarter 2018 financial results before the opening bell on Feb 20. In the last reported quarter, the company delivered a positive earnings surprise of 140%. Let’s find out how things are shaping up prior to the announcement.

Factors to Consider

Telefônica Brasil has been increasingly investing in technology upgrades and broadband network expansion to retain competitiveness in the rapidly changing market. It is the leading telephone operator in Brazil and continues reinforcing its position in both data and postpaid segments. The company anticipates that its top line will be driven by postpaid and IPTV growth, while prepaid and fixed voice platforms are expected to benefit from an improving macroeconomic climate.

Telefônica Brasil’s asset base and solid position in key high-value segments will likely help it deliver healthy operational performance in the fourth quarter of 2018. The company’s unique value proposition, based on providing the best connectivity inside and outside of home coupled with excellent customer experience through innovation, should help it register net additions in postpaid in the quarter.

Furthermore, the company is accelerating growth in coveted products by improving the quality of its customer base. This will likely enable it to enhance revenue mix for long-term sustainability. Owing to benefits from digitization and simplification, it is focusing on cost reduction initiatives, which should drive its EBITDA going forward.

Led by solid fundamentals, resulting in better-than-expected profitability and cash generation, Telefônica Brasil’s brand Vivo remains a growth driver within the sector.

For the fourth quarter, the Zacks Consensus Estimate for adjusted earnings per share is pegged at 26 cents. The company reported earnings of 28 cents in the prior-year quarter.

What Our Model Says

Our proven model does not conclusively show that Telefônica Brasil is likely to beat earnings this quarter as it does not possess one of the two key components. 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. This is not the case here as you will see below:

Earnings ESP: Telefônica Brasil’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00% as both are pegged at 26 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Telefonica Brasil S.A. Price and EPS Surprise

Telefonica Brasil S.A. Price and EPS Surprise | Telefonica Brasil S.A. Quote

Zacks Rank: Telefônica Brasil currently carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% Earnings ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Live Nation Entertainment, Inc. LYV has an Earnings ESP of +3.77% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Theravance Biopharma, Inc. TBPH has an Earnings ESP of +8.04% and a Zacks Rank #2.  

MacroGenics, Inc. MGNX has an Earnings ESP of +5.44% and a Zacks Rank #2.

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