Zacks Investment Research downgraded shares of Companhia de Saneamento Basico (SBS) from OUTPERFORM to NEUTRAL on November 30, 2012, with a target price of $88.00.
SABESP's 3Q12 earnings per ADR came in at US$1.59 compared with US$0.37 in the year-ago quarter, but below the Zacks Consensus Estimate of US$2.13. Revenues climbed 4.5% on the back of higher water supply, sewage collection and treatment, and construction revenue. Billed water and sewage volume increased 3.2% in the quarter. We believe SABESP 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. However, near-term concerns emanating from escalating cost of sales and services (roughly 59% of total revenue), political interference, mounting debt levels and risk of foreign exchange losses cannot be ignored. Hence, anticipating the company's performance in line with the broader market we have downgraded our recommendation on the stock from Outperform to a Neutral recommendation.
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