Why Petrobras (PBR) Stock Is Down Today

NEW YORK (TheStreet) -- Petrobras  (PBR) continued to fall Wednesday after the Brazilian state-run oil producer found more oil than expected at four of its deep water wells, but investors realized almost half the money would go to the government rather than shareholders.

The company is considering selling up to $11 billion in assets to shield itself from billions of dollars in additional payments to the Brazilian government in the next five years thanks to the exploration's success, according to Bloomberg.

Banco Bradesco SA and UBS AG each downgraded Petrobras to the equivalent of "hold" from "buy" after the Brazilian government said it would sell approximately 15 billion reais, or $6.7 billion, of new offshore oil rights to the most indebted producer in the world.

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Morgan Stanley also downgraded Petrobras to "hold" from "buy" and reduced its price target to $16 from $17.

The stock was down 1% to $14.83 at 12:19 p.m.

Separately, TheStreet Ratings team rates PETROBRAS-PETROLEO BRASILIER as a "hold" with a ratings score of C. TheStreet Ratings 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, increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and weak operating cash flow."

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

  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • PETROBRAS-PETROLEO BRASILIER's earnings per share declined by 43.3% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. However, the consensus estimates suggest that there will be an upward trend in the coming year. During the past fiscal year, PETROBRAS-PETROLEO BRASILIER's EPS of $1.70 remained unchanged from the prior years' EPS of $1.70. This year, the market expects an improvement in earnings ($3.63 versus $1.70).
  • The gross profit margin for PETROBRAS-PETROLEO BRASILIER is currently lower than what is desirable, coming in at 32.19%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 6.60% trails that of the industry average.
  • Net operating cash flow has decreased to $3,981.00 million or 46.59% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • You can view the full analysis from the report here: PBR Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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