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With 43% ‘Buy’ Ratings, Petrobras Is Second to Last

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Dec. 18 2018, Updated 7:31 a.m. ET

Analysts’ ratings for Petrobras

In the previous article, we reviewed analysts’ ratings for BP (BP). Now let’s look at analysts’ ratings for Petrobras (PBR). Petrobras has the second-smallest market cap of ~$84 billion among the seven integrated energy stocks under discussion in this series.

The graph above shows that six (or 43%) out of the 14 analysts covering Petrobras have rated it as a “buy.” The remaining eight analysts (or 57%) have rated PBR as a “hold.” Other leading integrated energy companies Total (TOT), Suncor Energy (SU), and Royal Dutch Shell (RDS.A) have been rated as “buys” by 100%, 92%, and 80% of analysts, respectively.

In the past year, Petrobras’s mean target price has risen 48% to $16.6 per share. Petrobras’s mean target price implies a gain of ~22% from the stock’s current level. Its implied gains have widened due to a steeper rise in its mean target price (48%) than the rise in its stock price (37%).

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Why most analysts call Petrobras a “hold”

Analysts’ ratings for Petrobras have improved in the past year, likely due to its improving financials. In the first nine months of 2018, the company’s adjusted EBITDA rose 19% YoY. Also, Petrobras’s nine-month EPS surpassed Wall Street analysts’ estimate. Further, the company successfully reduced its net debt by 14% over December 31, 2017, to $73 billion in the first nine months of 2018.

However, the majority of Wall Street analysts have rated the stock as a “hold” likely due to its debt position. Though Petrobras’s net debt has reduced, the company’s total debt-to-total capital ratio still stands higher than those of most integrated energy companies worldwide. Thus, Petrobras still has a long way to go to reach a comfortable debt position.

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