Credit Suisse Rated Petroleo Brasileiro Petrobras SA Stock Underperform
The article takes a look at why Credit Suisse has rated Petrobras stock as Underperform.
Credit Suisse has reaffirmed an Underperform rating on the stock of Petroleo Brasileiro Petrobras SA, while raising its twelve month stock price target to $6 from previous $5. The company, in its latest budget plans, decided to reduce its capital expenditure by almost $130 billion or $37% for the coming five years. This suggests an annual capex of $26 billion. The sell side firm believes the forecasted capital expenditures are as less as possible to carry out the next production.
In its recent plan, Petrobras also pointed out that it might undertake $58 billion asset divestitures plan. As per Credit Suisse, the company is very hopeful about its divestiture plan, claiming the amount to be very much ambitious.
However, Credit Suisse was satisfied with the overall production estimate of the company. Petrobras reduced its figure of production to $2.8 million barrels of crude oil per day from $4.8 million, showing a 5% compound yearly growth rate.
According to the terms, the company’s performance is much satisfactory as compared to the Brazilian Real depreciation to 3.6x from 3.1x by 2020. Petroleo Brasileiro Petrobras has also performed comparatively well to tackle the effect of crude oil prices, which has dropped by almost 50% since June last year.
Price Parity on gas still exists in the country’s market. The government of Brazil, in an attempt to counter check the inflation, forced the oil company to import gas at higher price and sell cheaper. The policy made the company suffer losses of around $40 billion from the year 2011 to 2014. Gasoline prices in Brazil are still less than gasoline prices globally. Some investors would be disappointed as no statement has been made by the Chief Executive Officer, Aldemir Bendine about the price parity.
Petrobras is the presently most indebted energy firm in the world, with over $120 billion of debt levels. Credit Suisse pointed out that the company previously has provided ambitious target of productions and robust currency and oil price projections. But mostly, these projections failed to meet the expectations, forcing the shareholders to become skeptical. Therefore, this time, it is important for the company to carry out its plan efficiently.
Almost 21 analysts covered the stock of Petrobras, five gave it a Buy, and 12 gave it a Hold while only four suggests a Sell rating to the stock. The twelve month stock price target stands at $10.28. Petrobras stock was down 4.36% to $8.65 at market close on Wednesday.
