PBR - Why Petrobras Stock Deserves A Downgrade

2024-07-05 10:01:20 ET

Summary

• I believe Petrobras stock should be downgraded due to recent management news and other factors, despite some uncertainty already being priced in.
• Recent financial data shows declining profitability, margins, and top-line revenue for Petrobras.
• The weakening of the Brazilian real further exacerbates these issues and impacts local revenues, which account for 70% of the company's total turnover.
• Petrobras currently trades at 4.5 times next year's earnings, which is about 60% below the energy sector median figure.
• I downgrade Petrobras to "Hold" due to a high likelihood of missing EPS and revenue expectations in Q2.

Intro & Thesis

I've been covering Petróleo Brasileiro S.A. - Petrobras ( PBR ) ( PBR.A ) stock here on Seeking Alpha since October 2023 and last updated my "Buy" rating in April of this year, calling the sell-off in PBR an opportunity to buy at discounted prices. The stock has indeed risen since then; unfortunately, the overall return of Petrobras, including dividends, underperformed the S&P 500 index ( SPX ) ( SP500 ) over the past 3 months. ...

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