NET Servicos Keeps Neutral Rec - Analyst Blog
August 15 2011 - 9:37AM
Zacks
We reiterate our Neutral recommendation on NET Servicos
de Comunicacao S.A. (NETC), which implies the stock will
perform in line with the broader market. The company reported
strong financial results for the second quarter of 2011 surpassing
the Zacks Consensus Estimates.
NET Servicos is generating commendable Pay TV subscriber growth
despite facing stiff competition from several aggressive wireless
and satellite service providers in the Brazilian broadband
market.
We believe NET Servicos is well positioned with respect to
several key operating metrics, including increasing ARPU, better
cash flow generation, and continued growth in revenues. On the
other side, we believe growing operating expenses coupled with the
volatility of foreign currency exchange rates are the main causes
of concern. Meanwhile, the stock price has dropped by nearly 35% in
the last year, which providing a cushion for further downslide.
The Pay-TV segment continues to deliver good results due to the
consolidation of Vivax on May 2007. At present, NET Servicos
commands 46% market share in Brazil. Growth in this segment was
attributable to the launch of Net Digital HD Max, the first Pay-TV
service in Brazil with high definition content.
NET Servicos has a smart mix of products creating synergies
within all its business segments. The digital cable service
provides high quality broadcasting and video-on-demand services. At
present, the company has more than 23.5 million pay-TV
subscribers.
Despite the stellar performance of the broadband and VoIP
businesses, this industry remains quite competitive. There always
remains the risk that competition will have a negative effect on
the operating margin of NET Servicos.The company is facing stiff
competition from Brasil Telecom S.A. (BTM),
Tele Norte Leste Participacoes S.A. (TNE), and
Telefonos de Mexico (TMX) in the Brazilian
telecommunications market.
BRASIL TELECOM (BTM): Free Stock Analysis Report
NET SVCS DE COM (NETC): Free Stock Analysis Report
TELMEX ADR-CL L (TMX): Free Stock Analysis Report
TELENORTE L ADR (TNE): Free Stock Analysis Report
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