Zacks.com Analyst Blog features: Vivo Participacoes (NYSE: VIV), Telefonica (NYSE: TEF), America Movil (NYSE: AMX), Rambus Inc. (Nasdaq: RMBS) and General Electric Company (NYSE: GE).
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Here are highlights from Tuesday’s Analyst Blog:
Vivo Upgraded on Strong Prospects
We are upgrading our recommendation on Vivo Participacoes (NYSE: VIV), the largest wireless operator in Brazil, to Outperform from Neutral. Currently, the stock has the Zacks #2 (Buy) Rank.
Vivo has a strong brand name in Brazil and the growth trend for the wireless business in that country remains positive in our view with the expansion of 3G coverage. The company’s differentiated services along with its investment in spectrum licenses will provide an upside to the company’s revenue and earnings going forward.
We believe the company is benefiting from its new operations in northeastern Brazil and expanded coverage for its 3G WCDMA network, the largest in that country. The expansion of 3G network provides significant advantage over its peers and will enhance additional wireless data revenue growth in future. Vivo invested heavily on spectrum acquisitions (including the 1.9 GHz frequency bands) to reinforce its 3G network.
Third quarter earnings largely outpaced the Zacks Consensus Estimate by 25 cents on account of strong revenue driven by an expansion in the 3G mobile customer base. Net income shot up 80.9% and revenue climbed 10.4% year over year. However, average revenue per user dropped 7.4% year over year due to dilution caused mainly by the presence of multiple SIM cards in the market.
Vivo, now fully controlled by Spanish telecom giant Telefonica (NYSE: TEF), continues to lead the domestic market in terms of new subscriber additions. The company gained 1.7 million subscribers in the third quarter, to reach 57.71 million (up 18.2% year over year) customers in total. Vivo maintained its leadership in terms of net addition with roughly 27.4% market share, beating its biggest rival America Movil’s (NYSE: AMX) Claro.
Vivo’s growth trends are expected to remain positive in the foreseeable future given the rapid economic recovery in Brazil. Differentiated services, a premium portfolio of handsets and service plans as well as its bellwether position are contributing to the company’s growth.
Further, Vivo is leveraging healthy cash flow from its cost cutting measures (through corporate restructuring) to reduce its debt exposure and fund dividend payments. Net debt of R$2.41 billion ($1.38 billion) at the end of the third quarter represents nearly 43.2% year-over-year decline. We expect Vivo to continue generating healthy free cash flow and reduce capital spending need, thereby creating opportunities for sustained debt reduction.
RMBS: License Renewal & Share Buyback
Rambus Inc. (Nasdaq: RMBS), announced yesterday, the renewal of its patent licensing agreement with Renesas Electronics Corporation, a company formed through the merger of Renesas Technology Corp. and NEC Electronics Corporation. Per the terms of the agreement, Renesas Electronics can use patented innovations of Rambus in its broad range of logic integrated circuit products.
The same day, Rambus reported the completion of an accelerated share repurchase program announced on August 19, 2010. The company repurchased 4.8 million shares at an average price of $18.88 totaling approximately $90 million.
The accelerated repurchase agreement is a part of Rambus’ 9.5 million share repurchase program authorized by its Board of Directors previously. As of December 21, 2010, the company had repurchased roughly 9.5 million shares at an average price of $20.48 and was left with roughly 5.2 million shares under the authorization.
California-based Rambus designs, develops, and licenses chip interface technologies and architectures that are used in digital electronics products. The company reported an uninteresting third quarter and missed the Zacks Estimates on both the top and bottom lines.
Recently, the company revised its fourth quarter revenue guidance to range within $85-$93 million versus its prior forecast of $40-$50 million. The revision was due to an estimated $180 million royalty payment from the Elpida agreement over the next five years.
Despite the positive revision, we believe that higher operating expenses will act as an impediment to growth in the quarters ahead, badly impacting financial results. However, Rambus’ endeavor to diversify into the lighting and display technology space in an effort to grab the tremendous opportunity of solid state lighting is encouraging.
We believe Rambus is well positioned as a key player to meet the escalating demand for LED lighting technology aided by its tie-up with GE Lighting, a unit of General Electric Company’s (NYSE: GE) Appliances & Lighting business.
We currently have a Neutral recommendation on the stock.
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