Petrobras (PBR) and Vale (VALE) Fall on China Concerns

NEW YORK (TheStreet) -- Brazilian oiler Petrobras (PBR) and iron-ore producer Vale (VALE) are shedding value after the release of economic data suggesting growth contraction in China, Brazil's largest trading partner. By mid-afternoon, the former had unloaded 2.5% to $12.36 while the latter had dropped 3.6% to $13.45.

Of concern, China's producer price index dropped 1.4% compared to consensus of a 1.3% drop. This marked its twenty-second consecutive month and the longest series of straight drops since the 90s.

"China is lurking," wrote Jim Cramer on premium site Real Money. "Unless we start seeing some better commodity numbers ... the market will not be able to advance with any alacrity."

TheStreet Ratings team rates PETROBRAS-PETROLEO BRASILIER as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate PETROBRAS-PETROLEO BRASILIER (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 attractive valuation levels, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • PBR, with its decline in revenue, slightly underperformed the industry average of 5.6%. Since the same quarter one year prior, revenues slightly dropped by 6.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has decreased to $6,274.00 million or 22.24% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 45.9% when compared to the same quarter one year ago, falling from $2,744.00 million to $1,484.00 million.

TheStreet Ratings team rates VALE SA as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate VALE SA (VALE) 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 good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has slightly increased to $4,162.84 million or 2.92% when compared to the same quarter last year. In addition, VALE SA has also modestly surpassed the industry average cash flow growth rate of -1.55%.
  • The gross profit margin for VALE SA is rather high; currently it is at 52.79%. Regardless of VALE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VALE's net profit margin of 1.24% is significantly lower than the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 94.9% when compared to the same quarter one year ago, falling from $2,302.44 million to $117.72 million.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 32.39%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 93.47% compared to the year-earlier quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.

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