Companhia de Saneamento Basico do Estado de São Paulo
) is currently hovering around its 52-week high. This Brazilian
utility (sanitation) announced long-term investment plans that were
well received by the market, and also reported a positive earnings
surprise of 35.8% in the first quarter of 2012. With a
price-to-book (P/B) ratio of just 1.44, this Zacks #1 Rank (Strong
Buy) stock is a solid value pick.
First Quarter Results
On May 10, SABESP reported upbeat first quarter 2012 results with
earnings per share of R$2.16 ($2.20 per ADR), marking a gain from
R$0.80 in the year-ago quarter. The result surpassed the Zacks
Consensus Estimate of $1.62 per ADR.
Net sales grew 12.8%, primarily due to a 3.0% rise in billed water
and sewage volumes. The number of connections and consumption grew
well in the quarter. Operating margin expanded 880 basis points to
27.5% on the back of rising revenues and declining operating
Also, in an effort to improve capacity, SABESP announced investment
plans worth R$7.9 billion for the 2012-2015 period. The company
emphasizes increasing its water supply coverage, implementing a 3%
hike in sewage collection to 85% and increasing collected sewage
treatment to 83% from 76%.
Estimates Moving Higher
In the last 60 days, the Zacks Consensus Estimate for 2012 inched
up 1.4% to $7.43 per ADR, while 2013 remained stable at $7.50 per
ADR. These estimates reflect year-over-year growth of 25.85% for
2012 and 1.01% for 2013.
A Value Play
The chart below clearly shows that the stock has traveled a long
way from $40 to $80 per share in the last two years. It plunged in
the second half of 2011, but recovered quickly in the beginning of
In addition to a low P/B, SABESP is currently trading at a forward
P/E multiple of 10.65, compared with the peer group average of
18.42. A P/E below 15.0 and a P/B ratio under 3.0 generally
SABESP is based in the State of São Paulo, Brazil, and was founded
in 1954. Serving roughly 23.9 million water and 20.5 million sewage
customers, the company is the fifth largest sanitation company in
the world. SABESP's principal shareholder is the São Paulo
government, which owns nearly 50.3% of the company.
SABESP -ADR (SBS): Free Stock Analysis Report
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