SABESP to Demonstrate Strength - Analyst Blog
We are keeping our Buy recommendation on Companhia de Saneamento Basico do Estado de S?o Paulo, or SABESP (SBS). The company posted positive results for the second quarter of 2008, even though operating margins were lower. The short-term outlook remains positive, based on the September 2008 tariff adjustment.
Despite the recent depreciation in Brazilian real due to the global financial crisis, we believe that soon the currency will strengthen and the company will benefit in the short term. Moreover, the regulatory framework for water and sewage in Brazil in 2006 helped the company in making all possible investments.
Our target price for SBS is US$60.00, representing a P/E between 9x and 10x our 2008 earnings estimate, closer to the average of the Brazilian Bovespa benchmark. We reiterate our Buy recommendation on SBS.
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