A Buy recommendation has recently been issued to Brazilian telecom firm Tele Norte Leste Participações S.A. (TNE) by Zacks senior Latin American markets analyst Claudio Freitas, CFA. Here's what his latest update said:
'We are reiterating our Buy recommendation on the shares of Tele Norte Leste Participações, or Telemar. The company posted better-than-expected third quarter results, and we continue to have a positive view on the Brazilian economic outlook. Additionally, the stock has a solid dividend yield and attractive valuation. In October 2007, TNE acquired wireless licenses to expand to Sao Paulo and to increase its frequency range in many other states in order to enhance the company's capacity to handle traffic.
'Finally, it seems the merger with Brasil Telecom (BRP) is already closed and it will be formally announced in the next few weeks. Presently, Tele Norte Leste Participações is trading at a P/E of 7.7x our estimated 2007 earnings estimates, a huge discount to the industry mean and median, and an enterprise value to EBITDA (a more common valuation metric for the wireless industry) of 3.1x our 2008 estimate. This is close to the low end of the 3.0x to 6.0x range for most of the Latin American wireline telecom operators, thus the current valuation seems to be highly attractive.
'Additionally, as we predicted, Telemar Participações did not succeed in buying shares of TNE since many institutional investors found the tender price too low. It is also important to note that the company has an interesting dividend yield, which is expected to increase in the short-term and that the possibility of a merger with Brasil Telecom is highly attractive. All considered, we maintain our Buy recommendation on the stock. Our target price at US$31.50 per ADR represents an enterprise value to EBITDA ratio of 4.0x-4.5x.'
Read the full analyst report on TNE.
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