NEW YORK (TheStreet) -- Oil company Petroleo Brasileiro (PBR), commonly referred to as Petrobras, has won a 40% stake in the controversial Libra oil field in Brazil. The auction process was hotly contested by Petrobras workers who picketed over international firms bidding for a majority stake.
Brazilian state-run Petrobras will lead a consortium including Royal Dutch Shell, Total (TOT), China National Petroleum (PTR) and China National Offshore Oil Corporation (CNOOC) (CEO). Shell and Total each have a 20% stake while PTR and CNOOC both hold 10%.
Libra, located 140 miles off the coast of Rio de Janeiro, is one of the world's largest offshore oil discoveries and has an approximate 8-12 billion barrels of recoverable resources available to be mined. The Brazilian government will reap 41.65% of profits on surplus oil (that is, oil mined after the companies have broken even on initial investments).
Shares closed 4.4% higher to $16.21, leading the S&P 500 which closed flat.
TheStreet Ratings team rates Petrobras as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate Petrobras (PBR) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- PBR's revenue growth has slightly outpaced the industry average of 6.5%. Since the same quarter one year prior, revenues slightly increased by 2.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
- PBR's debt-to-equity ratio of 0.73 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that PBR's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.59 is high and demonstrates strong liquidity.
- The gross profit margin for Petrobras is currently lower than what is desirable, coming in at 34.56%. Regardless of PBR's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, PBR's net profit margin of 8.42% compares favorably to the industry average.
- PBR's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 31.4%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: PBR Ratings Report
Written by Keris Alison Lahiff.