One Factor Bringing Oi SA (OIBR) Stock Up

NEW YORK (TheStreet) -- Shares of Oi SA (OIBR) were gaining 6.9% to $2.01 on heavy trading volume Wednesday following the announcement that the Brazilian telecommunications company hired Credit Suisse (CS) to sell its call centers.

The call centers account for 11% of the company's total workforce, according to Bloomberg. The sale would be the company's largest asset sale as it tries to decrease its leverage and rebuild credibility.

Oi CEO Bayard Gonjito told Bloomberg the company is trying to position itself as a stronger candidate for consolidation which it's a buyer of a seller.

"What we want for the future is to regain our investment grade," Gontijo said. "We have to work doing structural changes, transforming the business, selling assets, reducing the leverage. It's a process."

About 7.4 million shares of Oi were traded by 12:23 p.m. Wednesday, above the company's average trading volume of about 2.8 million shares a day.

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 swung to a loss, reporting -$0.30 versus $3.90 in the prior year. For the next year, the market is expecting a contraction of 100.0% in earnings (-$0.60 versus -$0.30).
  • 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 438.1% when compared to the same quarter one year ago, falling from $492.58 million to -$1,665.18 million.
  • Although OIBR's debt-to-equity ratio of 2.01 is very high, it is currently less than that of the industry average. Along with this, the company manages to maintain a quick ratio of 0.26, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, OI SA's return on equity significantly trails that of both the industry average and 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 81.03%, 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.
  • You can view the full analysis from the report here: OIBR Ratings Report
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