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Brazil-based water and sewage service provider, Companhia de Saneamento Básico do Estado de São Paulo, or SABESP (SBS - Analyst Report) announced the split ratio of its common stock after it was approved at the company’s Extraordinary and Ordinary Shareholders' Meeting.

As agreed upon, each existing outstanding share of SABESP will be split into three shares resulting in an increase in the company’s share capital to 683.5 million. Shareholders of record on Apr 22, 2013, will receive two new shares for each share held by them.  

Distribution of the shares by the Custodian will take place on Apr 26, 2013.

We believe this rise in the number of outstanding common shares will put a downward pressure on the company’s earnings per share. Earlier in Jan 2013, SABESP had changed the number of common shares underlying its American Depository Receipts (ADRs) traded on the NYSE from two to one.

SABESP holds solid long-term growth prospects as it is progressing well to achieve a target of roughly 1.3 million new water connections and 1.7 million new sewage connections by 2019. Further, to improve its services, an amount equal to R$9.9 billion has been allocated for use within the 2013-2016 timeframe.

The Zacks Consensus Estimate for 2013 now stands at $4.54 per ADR, up 7.6% year over year while for 2014 the estimate is at R$5.18 per ADR, reflecting an improvement of 14.0%. Also, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +7.7% for 2013.

SABESP currently has a market capitalization of $10.0 billion. Other stocks to watch out for in the industry are Aqua America Inc. (WTR - Snapshot Report), with a Zacks Rank #1 (Strong Buy) while American States Water Company (AWR - Snapshot Report) and American Water Works Company, Inc. (AWK - Snapshot Report), both carry a Zacks Rank #2 (Buy).

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