We recently maintained our Outperform rating on
Saneamento Basico do Estado de Sao Paulo or SABESP
), considered to be one of the largest water and sewage service
providers in Brazil.
The $9.7 billion company primarily serves the State of São Paulo,
the industrial and economic hub of the Brazilian economy that
solely accounts for about one third of Brazil's GDP. We believe the
company's non-cyclical, regulated utility business in this emerging
market is an attractive and relatively low-risk investment
The company to maintain its leading position is ever relentlessly
focused, trying to improve its services through strategic
investments. SABESP has allocated approximately R$7.9 billion for
upgradation/maintenance of its services. Of the total, 40% has been
set aside for Sewage collection, 32% for Water supply and 28% for
Collected sewage treatment for the 2012-2015 time frame.
We believe the company will work assiduously to achieve its
long-term target of 1.3 million new water connections and 1.7
million sewage connections by 2019.
Despite these long-term positive aspects, the company's performance
in the second quarter 2012 was weak. Net income plummeted 39% while
EPADR declined 51% to US$1.31 and lagged behind the Zacks Consensus
Estimate of US$1.43. Although revenues jumped 5.8%; the improvement
was negated by higher costs and expenses.
The current Zacks Consensus Estimate for the third quarter of 2012
is $2.13, representing a year-over-year increase of 493.06%.
Estimates for 2012 and 2013 are $7.85 and $9.26, reflecting annual
growth of 33.05% and 17.90%, respectively.
The stock currently has a Zacks #1 Rank, implying a short-term (1-3
months) Strong Buy rating while its nearest competitor
Veolia Environnement S.A.
) holds a Zacks #4 Rank, indicating a short-term Sell rating.
SABESP -ADR (SBS): Free Stock Analysis Report
VEOLIA ENVIRON (VE): Free Stock Analysis Report
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