Companhia De Saneamento (SBS) AI Stock Analysis

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Companhia De Saneamento

(NYSE:SBS)

76Outperform

Companhia De Saneamento's overall stock score reflects strong financial performance and attractive valuation. The company's robust revenue and profit growth demonstrate effective management and operational efficiency. The stock's technical indicators show positive momentum, though caution is warranted due to overbought signals. The low P/E ratio suggests potential undervaluation, making it an appealing investment opportunity. However, the absence of current earnings call data and corporate events limits further insight into the company's short-term prospects.

Positive Factors

Earnings

Sabesp reported a strong 4Q24 results with R$3bn adjusted EBITDA, up 4% year-over-year and 6% above estimates.

Market Position

Sabesp is considered one of the top picks within Brazilian Utilities, highlighting its strong position in the market.

Operational Efficiency

The small beat in earnings was mostly driven by faster-than-expected cost-cutting initiatives.

Negative Factors

Debt Management

Net debt decreased R$312mn quarter-on-quarter, potentially improving the company's financial stability.

Regulation

Change in regulation could add R$4-6bn NPV, which could positively impact the company's financials by fixing delays on the capex recognition in the Regulatory Asset Base.

Revenue Management

Potential catalysts for SBS's re-rating include improved delinquency and liability management and initiatives to close the revenue gap.

Companhia De Saneamento (SBS) vs. S&P 500 (SPY)

Market Cap

$14.04B

Dividend Yield1.04%

Average Volume (3M)1.40M

Price to Earnings (P/E)7.7

Beta (1Y)0.38

Revenue Growth26.64%

EPS Growth151.43%

CountryUS

Employees10,552

SectorUtilities

Sector Strength83

IndustryRegulated Water

Share Statistics

EPS (TTM)0.27

Shares Outstanding683,509,900

10 Day Avg. Volume1,382,302

30 Day Avg. Volume1,401,732

Financial Highlights & Ratios

PEG Ratio0.06

Price to Book (P/B)1.87

Price to Sales (P/S)0.00

P/FCF Ratio17.16

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$23.20

Price Target Upside13.06% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering1

Companhia De Saneamento Business Overview & Revenue Model

Company DescriptionCompanhia de Saneamento Básico do Estado de São Paulo SABESP provides water and sewage services to residential, commercial, industrial, and governmental customers. It provides water supply, sanitary sewage, urban rainwater management and drainage, urban cleaning, and solid waste management services, as well as related activities, including the planning, operation, maintenance, and commercialization of energy. As of December 31, 2021, the company provided water services through 9.8 million water connections to approximately 27.8 million people; sewage services through 8.4 million sewage connections to approximately 24.6 million people; and operated 88,904 kilometers of water pipes and water transmission lines, as well as 61,122 kilometers of sewer lines. It also offers water and/or sewage services to four other municipalities through special purpose companies. The company was founded in 1954 and is headquartered in São Paulo, Brazil.

How the Company Makes MoneySABESP generates revenue primarily through the provision of water supply and sewage services. The company charges its customers based on water consumption and sewage generation, with a tiered pricing model that varies by customer category, such as residential, commercial, or industrial. This pricing model is typically regulated by state authorities to ensure affordability and fairness. In addition to direct service charges, SABESP may also engage in infrastructure projects, partnerships, and government contracts that contribute to its revenue. Additionally, the company may receive financial support or subsidies from government entities to undertake large-scale infrastructure investments aimed at expanding and improving its service network.

Companhia De Saneamento Financial Statement Overview

Summary

Companhia De Saneamento's financial performance is solid, characterized by strong revenue growth and profitability, a stable balance sheet with moderate leverage, and effective cash flow management. The company is well-positioned in the regulated utilities sector, though it faces potential risks from regulatory changes and interest rate fluctuations. Overall, the financial health is robust with opportunities for sustained growth.

Income Statement

Very Positive

Companhia De Saneamento demonstrates strong revenue growth with a TTM revenue growth rate of 39.05% compared to the previous year. The company maintains a robust gross profit margin of 69.52% and a net profit margin of 26.23%. EBIT and EBITDA margins are also high at 44.76% and 52.92%, respectively, indicating strong operational efficiency and profitability. However, the industry is highly regulated, which may limit further margin expansion.

Balance Sheet

Positive

The balance sheet reflects a healthy equity ratio of 49.79%, suggesting a stable financial structure. The debt-to-equity ratio stands at 0.63, indicating moderate leverage that is manageable within the industry. Return on equity (ROE) is strong at 24.61%, showcasing effective use of equity to generate profits. However, the total debt level is significant, which could pose risks if interest rates rise or regulatory conditions change.

Cash Flow

Very Positive

Cash flow analysis reveals a positive free cash flow growth rate of 8.83% year-over-year. The operating cash flow to net income ratio is 0.69, suggesting that cash flows are supporting reported earnings effectively. The free cash flow to net income ratio is 0.44, indicating a substantial portion of earnings is translated into free cash flow, which is favorable for reinvestment and debt servicing. However, capital expenditures remain relatively high, which could impact free cash flow if not managed prudently.

TTM	Dec 2023	Dec 2022	Dec 2021	Dec 2020	Dec 2019
Breakdown
Income Statement		Total Revenue
35.57B	25.57B	22.06B	19.49B	17.80B	17.98B
	Gross Profit
24.73B	9.52B	7.70B	6.69B	6.62B	7.85B
	EBIT
15.92B	6.35B	4.62B	4.10B	4.49B	5.71B
	EBITDA
18.82B	8.96B	8.06B	6.28B	4.16B	7.30B
	Net Income Common Stockholders
9.33B	3.52B	3.12B	2.31B	973.32M	3.37B
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
852.52M	3.27B	3.55B	3.15B	3.81B	2.25B
	Total Assets
22.00B	61.47B	57.21B	53.17B	50.42B	46.46B
	Total Debt
6.57B	19.54B	18.96B	17.72B	17.26B	13.24B
	Net Debt
5.71B	18.70B	17.09B	17.01B	16.86B	10.99B
	Total Liabilities
11.18B	31.61B	29.87B	28.23B	27.62B	24.82B
	Stockholders Equity
10.82B	29.86B	27.33B	24.93B	22.79B	21.64B
Cash Flow		Free Cash Flow
4.12B	4.71B	3.89B	3.86B	4.94B	4.12B
	Operating Cash Flow
6.45B	4.85B	3.97B	3.91B	4.98B	4.20B
	Investing Cash Flow
-8.29B	-4.91B	-2.88B	-2.66B	-6.77B	-3.27B
	Financing Cash Flow
2.64B	-977.84M	60.30M	-929.02M	-66.35M	-1.71B

Companhia De Saneamento Technical Analysis

Technical Analysis Sentiment

Positive

Last Price20.52

Price Trends

50DMA

18.62

Positive

100DMA

17.21

Positive

200DMA

16.81

Positive

Market Momentum

MACD

0.53

Positive

RSI

65.36

Neutral

STOCH

61.51

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For SBS, the sentiment is Positive. The current price of 20.52 is above the 20-day moving average (MA) of 20.08, above the 50-day MA of 18.62, and above the 200-day MA of 16.81, indicating a bullish trend. The MACD of 0.53 indicates Positive momentum. The RSI at 65.36 is Neutral, neither overbought nor oversold. The STOCH value of 61.51 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for SBS.

Companhia De Saneamento Risk Analysis

Companhia De Saneamento disclosed 39 risk factors in its most recent earnings report. Companhia De Saneamento reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Companhia De Saneamento Peers Comparison

Overall Rating

UnderperformOutperform

Sector (63)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
AWK	77 Outperform	$27.80B	25.95	10.43%	2.15%	11.79%	11.69%
SBS	76 Outperform	$14.04B	7.65	28.57%	1.04%	26.64%	151.43%
HTO	73 Outperform	$1.80B	17.62	7.49%	3.08%	12.34%	11.78%
WTRG	69 Neutral	$10.89B	17.44	9.78%	3.30%	16.41%	5.65%
AWR	67 Neutral	$3.06B	24.54	13.95%	2.29%	6.79%	5.96%
Sector *	63 Neutral	$8.53B	10.18	4.66%	4.38%	3.77%	-12.97%
CWT	61 Neutral	$2.84B	20.94	8.67%	2.39%	3.83%	-8.75%

* Utilities Sector Average

Performance Comparison

SBS

Companhia De Saneamento

20.52

5.33

35.09%

AWR

American States Water

79.58

3.46

4.55%

AWK

American Water

142.56

12.06

9.24%

WTRG

Essential Utilities

39.15

1.18

3.11%

CWT

California Water Service

47.70

-3.77

-7.32%

HTO

H2O America

52.55

-4.99

-8.67%

Companhia De Saneamento Earnings Call Summary

Earnings Call Date:May 12, 2025

(Q3-2024)

% Change Since: 2.50%|

Next Earnings Date:Aug 11, 2025

Earnings Call Sentiment Neutral

The earnings call presented a mixed picture. While there were positive developments in revenue and EBITDA growth, operational cash generation, and new strategic directions post-privatization, significant challenges remain. These include regulatory impacts, transition costs, and construction delays. The company is focused on overcoming these hurdles with a new management team and investment strategies.

Q3-2024 Updates

Positive Updates

Revenue and EBITDA Growth

Net revenue increased by 7%, and EBITDA grew by 17% driven by a 2% increase in volume and pricing adjustments.

Operational Cash Generation

Generated operational cash of BRL 1.6 billion, which was almost entirely reinvested in the asset base.

Strategic Privatization and Transition

Privatization process enabled SABESP to transition from a state-owned model to a private one, allowing for potential operational and financial improvements.

Investment Program

Completion of BRL 1.4 billion investment this quarter with a significant investment program planned, including over BRL 60 billion for universalization of services.

Formation of New Management Team

New management team established to guide SABESP through privatization and operational transformation.

Negative Updates

Impact of Regulatory Adjustments

Revenue impacted by regulatory adjustments, including a 1% tariff reduction post-privatization.

Concession Contract Challenges

New concession contract presents challenges with regulatory parameters and tariff reviews.

Transition and Non-Recurring Costs

Incurred costs associated with privatization and transition, leading to non-recurring effects on operations.

Gap in Commercial Programs

Identified gaps in commercial programs leading to approximately 500 contract terminations.

Construction Delays

Delays in construction works attributed to transition period, with ongoing efforts to accelerate execution.

Company Guidance

During the Q3 2024 earnings call for SBSP3.SA, the management team provided comprehensive guidance on several financial metrics and strategic initiatives. Daniel Szlak, the CFO, detailed a 7% increase in net revenue, translating into a 17% rise in EBITDA, driven by a 2% growth in volume and pricing adjustments. The company reported a gross revenue impact of approximately BRL 8.8 billion due to deferred revenue adjustments under IFRS 12. Operational cash generation stood at BRL 1.6 billion, reinvested into the asset base. The privatization transition incurred non-recurring costs, yet the company saw a 6.4% tariff readjustment, netting a positive effect of around 5%. Additionally, SABESP completed BRL 1.4 billion in investments this quarter, with expectations to reach BRL 6.5 to 7 billion by year-end, despite transitioning from public to private procurement processes. The call also highlighted the company's strategic focus on universal sanitation, cost control, and an efficient capital structure, aiming to leverage a planned BRL 60 billion investment over five years.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.