Can Cellcom Israel Earnings Sustain the Stock's Rebound?

Cellcom Israel (CEL -9.97%) will release its quarterly report on Monday, and bottom-fishing investors over the past year have been rewarded for their risk tolerance in buying shares. Yet the company faces extremely challenging conditions in its home market, and Cellcom Israel earnings appear poised to remain under pressure despite the relative optimism that investors have had lately.

Cellcom Israel is a major player in the Israeli mobile market. As we've seen in the U.S., there's been a huge expansion in mobile capacity in the Middle Eastern nation, and that has given the industry plenty of growth potential. Yet the rise of smaller competitors seeking to get their share of Israel's wireless-network pie has created huge disruptions even among more-established players, calling into question just how profitable the business will be going forward. Let's take an early look at what's been happening with Cellcom Israel over the past quarter and what we're likely to see in its report.

Stats on Cellcom Israel

Source: Yahoo! Finance.

Can Cellcom Israel earnings keep growing?
Analysts have had mixed views on Cellcom Israel earnings in recent months, cutting their full-year 2013 estimates by about 8% but raising their 2014 consensus by between 3% and 4%. The stock, though, has moved sharply higher, rising more than 25% since mid-May.

Investors have already had a glimpse of Cellcom Israel's results for the second quarter, as the company provided an early warning that its earnings and revenue would fall short of expectations. With a price war having had a huge impact on the Israeli mobile market, inexpensive unlimited monthly plans hurt subscriber counts as well as sales and earnings among top industry players, including Cellcom and Partner Communications (PTNR). Cellcom also denied rumors, however, that it had put itself up for sale, despite the fact that its largest shareholder has had financial issues recently.

Certainly, that price war has had a big impact on Cellcom. In its first-quarter results, sales dropped more than 20%, while net income plunged more than 60%. Subscriber counts fell by nearly 200,000, boosting the churn rate for the quarter by half over the year-ago period. In many ways, that makes Cellcom look like rural U.S. telecoms Frontier Communications (FTR) and Windstream (WINMQ), both of which have had difficulty keeping sales up and retaining customers in light of competitive pressures from outside sources. Yet unlike those U.S. telecoms -- and unlike Partner, which sports a 10% dividend yield -- Cellcom doesn't pay a dividend to its shareholders after having suspended its payout last year.

More troubling has been the exodus of top-level managers from the company. Cellcom Israel's CFO said in June that he would resign in September, and then last month, the company's chief technology officer also chose to resign. Those departures don't instill confidence in the company's future prospects.

In the Cellcom Israel earnings report, watch to see how the company expects to handle its debt overhang in light of falling sales. Unless Cellcom Israel can start turning around its falling revenue, then it could start to resemble the rural telecom companies with which U.S. investors are so familiar.

Editor's note: A previous version of this article included an incorrect description of Cellcom Israel's business. The author and the Fool regret the error.