One Reason Petrobras (PBR.A) Stock is Falling

NEW YORK (TheStreet) -- Shares of Petroleo Brasileiro Petrobras (PBR.A) are down by 4.76% to $8.10 in mid-day trading on Thursday afternoon, as Bloomberg reports the Brazilian oil giant is in a New York City courtroom today fighting to get lawsuits brought against it by investors tossed out.

The suits were brought against the state-run company in the aftermath of the investigation into the alleged multi-billion dollar bribery scandal.

Petrobras is asking a judge to dismiss the investor case, saying it was swindled by disloyal employees that were trading construction contracts for payoffs, Bloomberg noted.

Petrobras' request comes one week after police detained the CEOs of two of Brazil's largest builders.

Eight suits have been filed on behalf of stock and bond investors have been bundled before a U.S. district judge for preliminary matters, Bloomberg noted.

"Petrobras might find it difficult to convince [the judge] that all the misconduct it alleges it is a victim of is likely to have happened without it at least questioning the goings on," Erik Gordon, a University of Michigan business professor told Bloomberg.

Separately, TheStreet Ratings team rates PETROLEO BRASILEIRO SA- PETR as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate PETROLEO BRASILEIRO SA- PETR (PBR.A) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, generally high debt management risk, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

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

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PETROLEO BRASILEIRO SA- PETR's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio of 1.31 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, PBR.A's quick ratio is somewhat strong at 1.09, demonstrating the ability to handle short-term liquidity needs.
  • Looking at the price performance of PBR.A's shares over the past 12 months, there is not much good news to report: the stock is down 48.39%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier 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.
  • PETROLEO BRASILEIRO SA- PETR's earnings per share declined by 17.6% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, PETROLEO BRASILEIRO SA- PETR swung to a loss, reporting -$1.12 versus $1.70 in the prior year. This year, the market expects an improvement in earnings ($1.65 versus -$1.12).
  • The change in net income from the same quarter one year ago has significantly exceeded that of the Oil, Gas & Consumable Fuels industry average, but is less than that of the S&P 500. The net income has decreased by 18.3% when compared to the same quarter one year ago, dropping from $2,280.00 million to $1,862.00 million.
  • You can view the full analysis from the report here: PBR.A Ratings Report

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