Merrill Lynch starts Telesp coverage w/ buy

Merrill Lynch initiated coverage of Brazilian fixed-line carrier Telecomunicacoes de Sao Paulo (Telesp) (NYSE: TSP) with a buy rating. "Our recommendation is supported by strong free cash flow generation, attractive valuation and, most importantly, compelling dividend yield," Merrill said in a report Friday. The US investment house set a US$17.00, 12-month price target on the American Depositary Receipts traded in New York. On Friday afternoon, Telesp ADRs were at US$15.83, up 2.73% from Thursday's closing figure of US$15.41. Telesp, controlled by Spain's Telefonica (NYSE: TEF), is one of three regional fixed-line incumbents in Brazil. According to Merrill, Telesp's "15% dividend yield is the highest of our global telco universe, compares to the 8.5% coupon of Brazil's 10-year sovereign bond and means TSP will 'pay itself back' in seven years."