Zacks Investment Research upgraded shares of Companhia de Saneamento Basico (SBS) from NEUTRAL to OUTPERFORM on May 29, 2012, with a target price of $84.00.
SABESP posted impressive 1Q12 results with net income increasing 169% y/y EPADR settled at $2.44, much above $0.96 in the year-ago quarter and the Zacks Consensus Estimate of $1.62. Revenue improved 13% as billed water and sewage volume rose by 3% due to an increase in the number of connections and acceleration in consumption. We believe the company will gain momentum and continue to work for its long-term target of providing 1.3 million new water connections and 1.7 million sewage connections by 2019. Moreover, satisfactory liquidity position supports investments aimed for expansion a R$7.9 billion plan has been launched recently to increase water supply coverage, sewage collection and treatment of collected sewage. Thus, we have upgraded the stock from a Neutral to an Underperform recommendation. However, risks arising from escalating cost of sales and services, adverse weather conditions, political interference and governmental delays, mounting debt levels and risk of forex losses cannot be ignored.
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