We are upgrading our recommendation on
Telefonica Brasil SA
) to Neutral from Underperform.
TELEFONICA S.A. (TEF): Free Stock Analysis
TELEF BRASIL SA (VIV): Free Stock Analysis
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Based in Sao Paulo, Brazil, Telefonica Brasil is the Brazilian
subsidiary of Spanish telecom giant
). Telefonica Brasil enjoys being the leading telephone operator
in the nation following the establishment of Vivo as the
commercial brand for all services.
We expect Telefonica Brasil's fixed-line business to benefit from
the expansion of video, broadband Internet and Pay TV services.
The company is also extending its Vivo brand to all the
fixed-line Internet and pay television services, which are
expected to fuel business growth. In an attempt to bring in more
profits, the company is expected to launch various new products
in the upcoming quarters and focus on areas with higher growth
potential like data transmission and video services.
Additionally, Telefonica Brasil has attractive long-term
opportunities in mobile business thanks to continued expansion of
the subscriber base. The company continues to increase leadership
in both data and post-paid segments by introducing various
attractive data plans. These steps are drawing more customers,
leading to subscriber growth, lower churn and greater data usage.
Telefonica Brasil is also progressing well in expanding its 3G
network based on CDMA EV-DO and HSPA technologies that provide
significant advantage over its peers. The company expanded its 3G
network coverage to numerous municipalities, encompassing
approximately 82% of the Brazilian population. The expansion of
the 3G network is expected to be an additional source for
wireless data revenue growth.
However, the company's dull third quarter results keep us on the
sidelines. Although the company's revenue met our projection,
earnings missed the Zacks Consensus Estimate due to low
contribution from the land-line business. The wireline voice
business is being increasingly exposed to competition from
alternative services including wireless telephony, VoIP (voice
over Internet Protocol) and cable services (voice, video and
Telefonica Brasil also remains vulnerable to risk factors such as
tariff cuts, adverse effects from regulatory changes as well as
unstable political and economic conditions. Hence, we see the
company as having limited upside potential at current levels, and
performing in line with the broader market.