NEW YORK (TheStreet) -- Shares of Oi SA (OIBR), the most indebted Brazilian telecommunications company, surged 20.13% to $1.85 in late afternoon trading Wednesday after the company announced it would eliminate more than 1,000 jobs and increase shareholder rights in an effort to turn around the company.
The Rio de Janeiro-based company announced Wednesday that it had reduced personnel expenses by 20% as part of its 2015 plan that centers on cost control.
On Tuesday, Oi's board of directors approved measures to strengthen shareholder rights, including the elimination of a complex controlling structure and giving non-voting shareholders the right to convert to voting shares.
The company's changes could help Oi, Brazil's smallest wireless provider, become a potential suitor or takeover target in the telecom industry, according to Bloomberg.
Oi is dealing with increasing competition in the space with fewer new users and the increasing necessity to invest in infrastructure to tap into the demand for wireless data, Bloomberg reports.
Separately, 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 a number of negative factors, 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, generally high debt management risk, disappointing return on equity, weak operating cash flow 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 $3.90 versus $7.93 in the prior year. For the next year, the market is expecting a contraction of 106.4% in earnings (-$0.25 versus $3.90).
- Although OIBR's debt-to-equity ratio of 2.18 is very high, it is currently less than that of the industry average. 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 87.16%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 100.00% 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.
- Net operating cash flow has decreased to $725.79 million or 25.70% when compared to the same quarter last year. Despite a decrease in cash flow of 25.70%, OI SA is in line with the industry average cash flow growth rate of -27.14%.
- You can view the full analysis from the report here: OIBR Ratings Report