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NEW YORK ( TheStreet) -- Companhia De Saneamento Basico Do Estado De (NYSE: SBS) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.

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Highlights from the ratings report include:
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Water Utilities industry average. The net income increased by 39.4% when compared to the same quarter one year prior, rising from $261.67 million to $364.71 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Water Utilities industry and the overall market, CIA SANEAMENTO BASICO ESTADO's return on equity exceeds that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is somewhat low, currently at 0.77, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.72 is somewhat weak and could be cause for future problems.
  • SBS's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 37.40%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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.
  • Net operating cash flow has decreased to $218.04 million or 49.35% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

Companhia de Saneamento Basico do Estado de S o Paulo-SABESP provides basic and environmental sanitation services; and supplies treated water on a wholesale basis to residential, commercial, industrial, and municipal customers in the State of S o Paulo. Companhia De Saneamento Basico Do Estado De has a market cap of $6.57 billion and is part of the utilities sector and utilities industry. Shares are down 13.3% year to date as of the close of trading on Monday.

You can view the full Companhia De Saneamento Basico Do Estado De Ratings Report or get investment ideas from our investment research center.

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