One Reason Petrobras (PBR.A) Stock Is Sinking Today

NEW YORK (TheStreet) -- Shares of Petroleo Brasileiro Petrobras (PBR.A) are sinking, down 7.6% to $6.99 in morning trading Monday, after analysts at Credit Suisse lowered their price target to $7.30 from $14 with a "neutral" rating.

Analysts at the firm cited difficulties in valuation, failure to provide unaudited third-quarter results, as well as falling oil prices, for lowering its price target on shares of the Brazilian oil and gas company.

Credit Suisse also noted that the company's "positive free cash flow" and "no need for additional financing" in 2015, were the two most important points from Petrobras' Friday statement.

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Last Friday, charges were announced against 36 suspects in Brazil's corruption scandal in which companies allegedly bribed public officials and overcharged the state-run energy company, as Brazil's top prosecutor called for Petrobas' management to step down in light of the recent scandal.

Prosecutor General Rodrigo Janot said Petrobas, Brazil's largest company, must be carefully scrutinized while its operations are made more transparent, Reuters noted.

Former director of Petrobras' refining division, Paulo Roberto Costa, was charged along with 23 executives from major Brazilian construction companies.

Alberto Youssef, who allegedly deals currency on the black market and distributed the bribe payments, was also charged, according to Market Watch.

Also, oil prices fell to a new five-year low this morning, as brent crude for January delivery fell $1.57 to $60.28 a barrel in Asian trade, its lowest price since July 2009. Brent was trading lower by 0.16% to $61.75 as of 10:35 a.m. today.

Petrobras is a Brazil-based integrated oil and gas company, operating through seven segments.

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) 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, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins."

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

  • The revenue growth came in higher than the industry average of 6.3%. Since the same quarter one year prior, revenues slightly increased by 3.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.84, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.30, which illustrates the ability to avoid short-term cash problems.
  • PETROBRAS-PETROLEO BRASILIER's earnings per share declined by 21.7% 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 ($2.99 versus $1.70).
  • 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 25.7% when compared to the same quarter one year ago, falling from $2,996.00 million to $2,225.00 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PETROBRAS-PETROLEO BRASILIER's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • You can view the full analysis from the report here: PBR.A Ratings Report

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