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Why Is Petrobras’s Valuation Higher Than Peer Average?

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Jan. 12 2017, Published 9:47 a.m. ET

PBR’s valuation

In this part of the series, we’ll be looking at Petrobras’s (PBR) valuations. After its production update news, which we covered in the previous part, PBR’s forward PE (price-to-earnings) and EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] stood at 18.7x and 6.3x, respectively. The peer average was 18.0x and 6.0x, respectively.

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Peer comparison

Let’s see how PBR compares to its peers. PBR is trading above BP (BP), Total (TOT), YPF[2. Yacimientos Petrolíferos Fiscales] (YPF), and Eni SpA (E) on both valuation multiples. That’s likely due to the 5.0% rise in PBR stock after the company’s production update. PBR stock rose quite a bit in 2016, backed by rising oil prices and efforts by the company to improve its fundamentals.

But PBR trades below ExxonMobil (XOM) and Chevron (CVX) on both valuation multiples, likely because they’re better placed in terms of leverage. For exposure to integrated energy stocks, you can consider the iShares North American Natural Resources (IGE). The ETF has a ~22.0% exposure to the sector.

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