SABESP Upped to a Strong Buy - Analyst Blog

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Zacks Investment Research upgraded Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP ( SBS ) to a Zacks Rank #1 (Strong Buy) on Mar 27, 2013. The company is a Brazil-based water and sewage service provider and currently has a market capitalization of $10.7 billion.

Why the Upgrade?

Financial results for the year 2012 posted by SABESP on Mar 21, 2013 were impressive.  The company's earnings per share, as reported by SABESP, were R$8.39, up 56.2% year over year. In ADR terms, earnings came in at US$8.61.

Net revenue in the year inched up 8.2% to R$10.8 billion (US$5.5 billion) on the back of higher water supply, sewage collection and treatment, and construction revenue. Billed water and sewage volume rose 2.7% year over year. Water volume produced increased 2.2%; water connections crept up 2.6% and sewage connections rose 3.5%.

SABESP reported declines in cost and expenses in 2012. As a percentage of revenue, cost of sales and services plummeted 60 basis points to 60.1%. Gross margin came in at 39.9%. Operating expenses, including selling, administrative and other expenses declined 7.2% year over year and represented 13.4% of the total revenue.

Solid financial results in 2012 and positive earnings surprise in two out of four trailing quarters, with an average of +11.5%, have raised our optimism for better results in the years ahead for SABESP. In the last 7 days, the Zacks Consensus Estimate for 2013 went up by 8.9% to US$4.54 per ADR while that for 2014 increased 19.9% to US$5.18 per ADR. Also, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method ) of +7.7% for 2013.    

Other Stocks to Consider

Other stocks to watch out for in the industry are Aqua America Inc. ( WTR ), with a Zacks Rank #1 (Strong Buy) while American States Water Company ( AWR ) and American Water Works Company, Inc. ( AWK ), both carry  Zacks Rank #2 (Buy).



AMER WATER WORK (AWK): Free Stock Analysis Report

AMER STATES WTR (AWR): Free Stock Analysis Report

SABESP -ADR (SBS): Free Stock Analysis Report

AQUA AMER INC (WTR): Free Stock Analysis Report

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Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AWK , AWR , SBS , WTR

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