Petrobas (PBR-A) Stock Slumping After Five Year Budget Cut, Sliding Oil Prices

NEW YORK (TheStreet) -- Shares of Petrobas Brasileiro S.A. (PBR) are tumbling 3.32% to $8.16 after the Brazilian state-run oil company said that it plans to lower investments by 37% over the next five years in order to reduce debt, The Wall Street Journal reports.

Over the 2015 to 2019 period, capital spending will total about $130 billion, down from its previous five-year plan of $206.8 billion, the Journal said.

The reduction deals a "significant setback to Brazil's ambitions of becoming a major player in the global industry," as the company reduced its domestic production target by 2020 to 2.8 million barrels of oil per day, down from 4.2 million barrels, according to the Journal. 

The company also plans to sell off assets in a bid to preserve cash, as it expects to divest $15.1 billion in 2015 to 2016, an increase from a previous target of $13.7 billion.

Additionally, Petrobas stock is falling due to decreasing oil prices. Crude oil (WTI) is retreating 2.01% to $58.43 per barrel and Brent crude is sliding 2.12% to $61.92 per barrel, according to the CNBC.com index.

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 number of negative factors, 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 48.24%, 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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