NEW YORK (TheStreet) -- Oi SA (OIBR) shares dropped 6% to $1.41 in trading Wednesday following the news that the Brazilian Securities and Exchange Commission (CVM) had reached a decision on the shareholder complaints that it was investigating.
Oi SA minority shareholders had filed a complaint with the commission taking issue with the Brazilian telecom company's proposed merger with Portugal Telecom. They had sought to stop a March 27 shareholders meeting where the terms of the deal are expected to be discussed. The CVM ruled that the shareholder meeting could go forward despite the complaints.
The shareholders are opposed to the deal because they say that Portugal Telecom's stock is overvalued and therefore their shares would be diluted in the $3.5 billion deal.
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TheStreet Ratings team rates OI SA as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate OI SA (OIBR) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- OI SA has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, OI SA reported lower earnings of $0.79 versus $0.92 in the prior year. For the next year, the market is expecting a contraction of 104.3% in earnings (-$0.03 versus $0.79).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Diversified Telecommunication Services industry. The net income has significantly decreased by 72.9% when compared to the same quarter one year ago, falling from $284.81 million to $77.29 million.
- The debt-to-equity ratio is very high at 3.36 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, OIBR has a quick ratio of 0.69, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Diversified Telecommunication Services industry and the overall market, OI SA's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 58.00%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 70.58% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: OIBR Ratings Report