Tag Archives: NYSE:PBR

Petroleo Brasileiro: Zacks’ Bear of the Day Play

Petroleo Brasileiro (PBRAnalyst Report) has been in a rough spot of late, highlighted by the recent release of their audited financials from the Lava Jato accounting scandal.  To compound the difficulty, the company currently carries a massive debt of +$130 billion.  Further, PBR has to deal with persistently low oil prices, and a balance sheet with a 53% debt to capital ratio.  Due to all these negative issues, Petroleo Brasileiro is the Zacks Bear of the Day.

This Zacks Rank #5 (Strong Sell) is an integrated company operating in exploration, production, refining, retailing, and transportation of petroleum and its byproducts at home and abroad.

After the accounting scandal, a new management team was put in place, but they have been immediately confronted with the massive +$130 billion debt, and deep-water drilling projects that have been put on delay over the past 6-8 months.  Even though management has significantly decreased their capital budget (2015 decreased by $32 billion), they still have a ways to go.  Moreover, due to these negative issues, management has stated that they will suspend their dividend altogether, making PBR the first oil and gas company to do so since the oil price freefall.

Estimates Graph

The graph below shows PBR’s historic price levels against the EPS consensus.  As you can see the estimates have been declining for quite some time.

Declining Estimates

Over the past 7 days, earnings estimates have declined for Q1 15, Q2 15, FY 15, and FY 16; Q1 15 estimates fell from $0.24 to $0.15, Q2 15 dropped from $0.36 to $0.21, FY 15 declined from $1.12 to $0.91, and FY 16 fell from $1.42 to $1.30.

Bottom Line

Petroleo Brasileiro’s new management team has a huge hole to dig themselves out of, and it is not going to be easy.  With a terrible debt to equity ratio, a massive debt, and persistently low oil prices, it will be a while before this company can return to its previous solid performances.

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Petrobras: Zacks’ Bear of the Day Play

Petrobras (PBRAnalyst Report) shares were in a steady uptrend this year that looks like a swing traders dream with waves of higher highs and higher lows after the giant integrated Brazilian energy company finally bottomed at a multi-year low of $10.

But early September’s peak just below $21 was met with some fast and furious liquidation bringing shares back nearly 25% in a couple of weeks.

The cause? More earnings estimate revisions (EER) of the downward variety. And this is not a new story for PBR since the shares traded back above $50 in late 2009.

Here is the Zacks proprietary Price & Consensus chart that shows how well stock prices following the direction of EER…

The Brazil Economy and Politics

Some energy analysts probably also cite larger macro forces at work in shares of PBR too. Brazilian stocks had a remarkable bull run this year that PBR was part of.

But more recently, Brazil’s equity market has been riding the election waves. When the polls show voter support for incumbent Dilma Rousseff, markets sell off, while improving prospects for opposition candidate Marina Silva sends the iBovespa index higher.

In this Latin American nation, leftist President Dilma Rousseff has come under heavy criticism for Brazil’s dismal economic performance under her leadership, highlighted by recession and increasing inflation. Therefore, her re-election is perceived as the extension of this ‘stagflation’-like situation.

On the other hand, Brazilian Socialist Party presidential candidate Marina Silva is seen as increasingly pro-industry, thereby preferred by investors. The business community is hopeful that her win would not only attract more capital to the country but more importantly, reduce the state intervention in company affairs.

Watching the coming October 5 election results will be important for PBR investors. But equally vital will be monitoring the Zacks Rank to tell you when the analysts have turned around their view of the company’s earnings outlook.

Kevin Cook is a Senior Stock Strategist for Zacks.com where he runs the Follow The Money Portfolio.