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SABESP (SBS) Stock Struggles With Costs, Debt & Politics
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We issued an updated research report on Companhia de Saneamento Basico do Estado de Sao Paulo (SBS - Free Report) or SABESP on Aug 18.
Rising expenses, governmental interference and high debt levels might adversely impact the company’s profitability in the quarters ahead.
In the last month, American Depository Receipts of this Zacks Rank #4 (Sell) stock have lost 15.4%, underperforming roughly 2.6% decline of the industry.
Here’s why investors seeking exposure in the utilities industry should avoid investing in SABESP:
Rising Costs and Currency Translation: SABESP has been suffering from adverse impact of higher costs and expenses over time. In second-quarter 2017, its costs, administrative, selling and construction expenses grew 5.1% over the year-ago period. Also, the company’s results were adversely impacted by incurrence of exchange loss in the quarter. We believe that unwarranted rise in operating expenses as well as adverse impacts from currency translation will dent the company’s profitability.
Highly Leveraged: Being highly leveraged, SABESP faces risks from increased financial obligations. Notably, the company had long-term debt of R$10.3 billion at the end of second-quarter 2017. In the first half, net debt to adjusted earnings before interest, tax, depreciation and amortization was 2.07x while net debt to equity was 0.63x.
Its debt burden might increase further, as the company will be resorting to institutional financing to fund roughly 26% of its R$13.9 billion investment plan for 2017 to 2021.
Governmental Interference: Of SABESP’s share capital, roughly 50.3% is owned by the government of Sao Paulo, giving it the power to select the majority of members comprising the board of directors and senior management.
Under such circumstances, regulatory uncertainty or delay by the government in taking any decisions pose substantial hindrance. We believe such unwarranted political or governmental interference can jeopardize the company’s future planning and growth prospects.
Fortis’ earnings estimates for 2017 and 2018 were revised upward over the last 60 days. Also, the company pulled off an average positive earnings surprise of 10.99% in the last four quarters.
Alliant Energy Corporation performed well in second-quarter 2017, delivering a positive earnings surprise of 5.13%. Its earnings are predicted to grow 5.5% in the next three to five years.
SJW Corporation’s earnings estimates in 2017 and 2018 improved in the last 60 days. Financial performance was better than expected in three of last four quarters, with an average positive earnings surprise of 23.90%.
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SABESP (SBS) Stock Struggles With Costs, Debt & Politics
We issued an updated research report on Companhia de Saneamento Basico do Estado de Sao Paulo (SBS - Free Report) or SABESP on Aug 18.
Rising expenses, governmental interference and high debt levels might adversely impact the company’s profitability in the quarters ahead.
In the last month, American Depository Receipts of this Zacks Rank #4 (Sell) stock have lost 15.4%, underperforming roughly 2.6% decline of the industry.
Here’s why investors seeking exposure in the utilities industry should avoid investing in SABESP:
Rising Costs and Currency Translation: SABESP has been suffering from adverse impact of higher costs and expenses over time. In second-quarter 2017, its costs, administrative, selling and construction expenses grew 5.1% over the year-ago period. Also, the company’s results were adversely impacted by incurrence of exchange loss in the quarter. We believe that unwarranted rise in operating expenses as well as adverse impacts from currency translation will dent the company’s profitability.
Highly Leveraged: Being highly leveraged, SABESP faces risks from increased financial obligations. Notably, the company had long-term debt of R$10.3 billion at the end of second-quarter 2017. In the first half, net debt to adjusted earnings before interest, tax, depreciation and amortization was 2.07x while net debt to equity was 0.63x.
Its debt burden might increase further, as the company will be resorting to institutional financing to fund roughly 26% of its R$13.9 billion investment plan for 2017 to 2021.
Governmental Interference: Of SABESP’s share capital, roughly 50.3% is owned by the government of Sao Paulo, giving it the power to select the majority of members comprising the board of directors and senior management.
Under such circumstances, regulatory uncertainty or delay by the government in taking any decisions pose substantial hindrance. We believe such unwarranted political or governmental interference can jeopardize the company’s future planning and growth prospects.
Stocks to Consider
SABESP currently has $6.5 billion market capitalization. Better-ranked stocks in the Utilities sector include Fortis Inc. (FTS - Free Report) , Alliant Energy Corporation (LNT - Free Report) and SJW Corporation (SJW - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Fortis’ earnings estimates for 2017 and 2018 were revised upward over the last 60 days. Also, the company pulled off an average positive earnings surprise of 10.99% in the last four quarters.
Alliant Energy Corporation performed well in second-quarter 2017, delivering a positive earnings surprise of 5.13%. Its earnings are predicted to grow 5.5% in the next three to five years.
SJW Corporation’s earnings estimates in 2017 and 2018 improved in the last 60 days. Financial performance was better than expected in three of last four quarters, with an average positive earnings surprise of 23.90%.
4 Surprising Tech Stocks to Keep an Eye on
Tech stocks have been a major force behind the market’s record highs, but picking the best ones to buy can be tough. There’s a simple way to invest in the success of the entire sector. Zacks has just released a Special Report revealing one thing tech companies literally cannot function without. More importantly, it reveals 4 top stocks set to skyrocket on increasing demand for these devices. I encourage you to get the report now – before the next wave of innovations really takes off.
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