Zacks senior Latin American markets analyst Claudio Freitas, CFA has recently downgraded the American Depositary Receipts (ADRs) of Brazilian telecom firm TIM Participações S.A. (TSU) from Hold to Sell. Here are some of the reasons why:
'We are changing our current recommendation on TIM Participações S.A. from Hold to Sell. Third quarter results were disappointing, and the less benign Brazilian monetary policy is a source of concern. The Brazilian wireless sector also remains a problem and must be the main reason why the company has been unable to translate competitive advantages into profits. Finally, TSU's current valuation is not particularly attractive.
'Presently, TSU is trading at an enterprise value to EBITDA (a common valuation metric for the wireless industry) of 7.8x the 2007 estimated EBITDA. We believe the company does not deserve such a high valuation anymore, since it has been posting weak results, mainly considering the still competitive business environment in the Brazilian wireless sector.
'In our opinion, the current valuation seems to be excessive compared to other Brazilian telecom operators, particularly Vivo (VIV), which has been posting improving results. The deal with Spain's Telefonica (TEF) and Telecom Italia (TI) in Europe was much better for Vivo than for TSU, and in this sense we expect the valuation of both companies to converge in the short-to medium term.
'Additionally, TSU's net income has been growing much slower than we expected. We believe the current valuation of TSU is not particularly attractive anymore, mainly if compared to that of Vivo. Our target price is US$35.00, which is based on an EV (enterprise value)/20007 estimated EBITDA multiple around 7.0x.'
Read the full analyst report on TSU.
Read the full analyst report on TEF.
Read the full analyst report on TI.
Read the full analyst report on VIV.
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.