Telesp S.A. - ADS (VIV) - Bear of the Day
September 19 2011 - 8:00PM
Zacks
We are downgrading our recommendation to Underperform from
Outperform on
Telesp S.A. (VIV). Although the Vivo merger
boosted Telesp's existing operations, competition in fixed-line and
mobile businesses weigh on its results. We are skeptical about the
company's ability to regain lost profitability of the fixed-line
business.
Tariff cuts or changes in government regulations would also
create added pressure. All these factors might restrict potential
synergies derived from the merger and restrain top and bottom-line
growth. Hence, we expect the company to underperform the
market.
Telesp is expected to suffer intense inflationary pressure,
competition and excessive government intervention. We give an
Underperform rating to the stock, with a price target of $27, based
on 10.7x our 2011 EPADS estimate.
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