(SBS) SABESP – ADR – Bull of the Day

We believe Sao Paulo, Brazil-based utility SABESP – ADR (SBS) 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. Satisfactory liquidity position supports investments aimed for expansion; a R$7.9 billion plan has been launched to increase water supply coverage, sewage collection and treatment of collected sewage.

SABESP keeps up its position as one of the largest water and sewage services providers in the world. It recorded a rise in billed water and sewage volume during the second quarter 2012, primarily due to a higher number of connections and acceleration in consumption. Its non-cyclical regulated utility business in the Brazilian emerging market is an attractive and relatively low-risk investment opportunity.

Despite a little setback emanating from a rise in cost of sales and services, long-term growth prospects compelled us to maintain an Outperform recommendation on the stock. Our $105.00 price objective results from 13.4x earnings multiple (2012).

Zacks Investment Research

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