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SABESP (SBS) Upgraded to Strong Buy on Solid Investment Plan

On Jul 8, Zacks Investment Research upgraded Companhia de Saneamento Basico do Estado de Sao Paulo SBS or SABESP to a Zacks Rank #1 (Strong Buy). Going by the Zacks model, companies sporting a Zacks Rank #1 have strong chances of outperforming the broader market.

Over the last one year, SABESP’s American Depository Receipts (ADR) have yielded 6.20% return, outperforming 1.20% decline recorded by the Zacks categorized Utility Water Supply industry.

Why the Upgrade?

Market sentiments have been favoring SABESP for quite some time now. The company’s financial performance has been impressive in first-quarter 2017, with net earnings and revenues increasing 7.3% and 17.5% year over year, respectively. We believe that the company is well-positioned to benefit from higher demand for water and sewage services created by growth in the Brazilian population.

Notably, SABESP aims to add nearly 1.0 million new water connections and 1.3 million new sewage connections by the end of 2022. To improve its services, the company has planned investments worth R$13.9 billion for 2017−2021. Of the total, roughly R$7,098 million will be invested in water, R$5,423 million in sewage collection and R$1,358 million in sewage treatment.   

As of Mar 31, SABESP covered approximately 67% of the urban population in the state of Sao Paulo. Municipalities served included 366 of total 645. It provided water and sewage services to roughly 24.8 million and 21.3 million customers, respectively. We believe that the company’s targeted capital investment of R$2.3 billion will enable it to provide better services to existing customers while adding new ones to its list.  

Investors seem to be optimistic about SABESP’s future prospects, as evident from positive revisions in earnings estimates for the stock. Over the last 60 days, the Zacks Consensus Estimate for the company grew 10.8% to $1.13 per ADR for 2017 and 11.6% to $1.25 for 2018.

Other Stocks to Consider

SABESP has a market capitalization of $6.96 billion. Other stocks worth considering in the utility industry include Consolidated Water Co. Ltd. CWCO, The York Water Company YORW and ONE Gas, Inc. OGS. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Consolidated Water’s earnings estimates for 2017 and 2018 were revised upward over the last 60 days. Also, its earnings surprise in the last quarter was a positive 63.64%.
 
The York Water’s earnings estimates for 2017 improved over the past 60 days.

ONE Gas’ financial performance in the last four quarters was impressive, with an average positive earnings surprise of 13.38%. Also, its earnings estimates for 2017 were revised upward in the last 60 days.  

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ONE Gas, Inc. (OGS): Free Stock Analysis Report
 
Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp (SBS): Free Stock Analysis Report
 
The York Water Company (YORW): Free Stock Analysis Report
 
Consolidated Water Co. Ltd. (CWCO): Free Stock Analysis Report
 
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