Zacks_Analysts' Blog : NET Servicos to Underperform - Analyst Blog

We downgrade our recommendation for Net Servicos de Comunicacao S.A. (NETC) to Underperform following our assessment that the company is likely to lose its market share in the Brazilian broadband market to more aggressive wireless and satellite service providers.

The stock has moved up nearly 62% in the last one year and is trading at a higher multiple than the S&P 500 average. We believe that the current stock price is overvalued given the strong competition NET Servicos faces from other broadband services providers.

 

In Brazil, media companies are suffering from audience fragmentation and limited near-term reinvestment opportunities. Consumers have access to an unprecedented selection of independent media outlets resulting in audience dilution for most traditional media services.

To retain share, large media companies are forced to reinvest in additional media outlets.  However, growth is limited by government regulations on media ownership. Attractive reinvestment opportunities, nevertheless, remain a challenge.

 

Despite the stellar performance of the broadband and VoIP businesses, this industry remains very competitive. The global economic crisis still remains a cause of concern and its effects in Brazil can be stronger than we anticipate. We do not find any immediate growth catalyst for the company which may drive the stock price in the near future.