Zacks Analyst Blog Highlights: Brasil Telecom, Telemar and SanDisk.

CHICAGO -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Brasil Telecom Participacoes S.A. (NYSE: BRP),

See the latest posts to the Analyst Blog by visiting: http://at.zacks.com/?id=2673

Here are highlights from Wednesday's Analyst Blog:

Brasil Telecom Merger Inevitable

We are keeping our current Buy recommendation on Brasil Telecom Participacoes S.A. (NYSE: BRP). The company posted better-than-expected results in the first three quarters of 2007, and the short-term outlook remains positive. The company also has solid cash flow, decent operating margins in the wire-line business, and an attractive valuation.

Additionally, the growth in the wireless and the broadband segments are encouraging and should continue in future quarters. We believe the possibility of a merger between Brazil Telecom and Telemar (NYSE: TNE) is just a matter of time. BRP is trading at 16.7x our 2007 EPS estimate, below the industry mean and median, and an enterprise value to EBITDA (a more common valuation metric for the telecom industry) of just 2.8x our 2007 estimate.

In fact, the EV/EBITDA multiple went down this quarter due to the considerable fall in the company's net debt. The EV/2007 EBITDA valuation remains below the industry mean, and is close to the low point of the historical range of 3.0x to 6.0x for most of the Latin American telecom operators. BRP is also trading at just 0.9x its price/sales ratio, well below the industry mean and also below other Brazilian telecom operators. We think the stock is trading at a highly attractive valuation.

Additionally, the company posted very good results for the fourth quarter 2006, first quarter 2007, second quarter 2007 and third quarter 2007 the short-term outlook seems promising, mainly considering the recent news regarding a possible merger with TNE. Our target price is US$92.50, which is based on an EV/2007 estimated EBITDA of 3.5x, close to the current valuation of Telemar. All considered, we are maintaining our current Buy recommendation.

SanDisk Difficulties Behind It

SanDisk (Nasdaq: SNDK) has struggled of late with rapid price declines in the flash market. However, growing demand for high-capacity flash products and going into a seasonally strong period, we believe price declines will slow in the third and fourth quarters. SanDisk remains the best positioned producer of flash given its investments in low-cost production capacity.

Moreover, the company has undergone restructuring in the early part of the year. We, therefore, maintain the Buy rating on the shares of SNDK with a target price of $69.00 on expectations for growing revenue and margins. Although Q2 price declines were still fairly severe on a historical basis, strong Q3 results give us confidence that the situation has bottomed.

Demand for high-capacity flash products should begin to drive demand in the second half, which combined with seasonal strength, should provide price support. SanDisk is well-positioned to benefit from its strategic investments in low-cost captive capacity Fab 3 and Fab 4 as demand grows.

Following Q3 strength, we expect continued margin improvements combined with top-line growth. SNDK is currently trading at 68.1x our 2007 earnings estimate of $0.72 and 36.1x our 2008 EPS estimate of $1.36 per share.

See the latest posts to the Analyst Blog by visiting http://at.zacks.com/?id=2645

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