Petroleo Brasileiro S.A. (NYSE: PBR) is known as Petrobras around the world, and it is one of the most government-controlled and dominated oil and gas companies any investor can pick from. This state-owned Brazilian oil giant has been identified by Oggonomics as a case where it is a wonder why this Brazilian “company” is able to attract any investors at all. Well, not everyone sees this negative stance as a universal outlook. Jefferies has upgraded Petrobras to Buy and sees more than 25% upside plus a strong dividend to boost the gains even further.
In May of 2024, Oggonomics outlined how its rather complicated share structure under an unfriendly government should keep Oggonomics on the sidelines. What’s there to like? The difference between now and then is that this was basically a $15 stock a year ago — but it’s basically a $12 stock now. Does this big drop in value finally make Petrobras safer to own for investors?
Oggonomics still maintains a negative opinion about the capital structure as a state-owned entity that masquerades as a public stock. But after a 20% sell-off in the stock, maybe it’s fair to look and see what Jefferies has to say here. Oh, and let’s see what BofA Securities has to say since it is positive as well.
THE JEFFERIES CALL
Jefferies has decided to upgrade Petrobras to Buy from Hold but its price target of $15.30 remains unchanged after it closed at $12.15 before the call. The 52-week range of $11.03 to $15.73 for its ADSs signals a partial price-based and value upgrade since the shares are down from $15 just in February. That said, working with lower oil prices and maintaining its base dividend commitment are also said to have put a positive reward/risk scenario.
While this contains some bottom-fishing theme, Jefferies pointed out that Petrobras is pursuing cost-cutting to weather lower oil prices and that some of its new investments and platforms should offer some upside to its 5% production growth targets for 2025. Jefferies even called the current price levels and discount to peers as an opportunity for its shares to re-rate (hence the Buy rating).
The Jefferies upgrade is after Petrobras reported an increased production of oil and gas in Q1 versus Q4. Petrobras also noted this week that its Shareholder Compensation Policy allowed it to continue with plans to distribute 45% of free cash flow to its shareholders, consistent with the financial sustainability of the company. This makes the dividend variable over time but it screens as a double-digit yield. Investors also need to keep in mind that as a state-controlled entity Petrobras shareholders are much further down the line than they are in traditional capital structures of other companies in most countries.
BOFA ALSO SEES GOOD THINGS, SORT OF…
BofA Securities maintained its Buy rating on Petrobras in the wake of this week’s earnings report. The firm believes Petrobras offers an attractive carry despite the drop in oil prices as its dividend yield is hovering at 12.5% in 2025 to 2026). The firm also sees “potential upside optionality” in this stock under a more market-friendly outcome in the upcoming Brazilian elections. That is of course up to the Brazilian people and how they vote, but they have been good at electing officials who have unfriendly policies for corporations and investors alike.
BofA’s rating was reiterated as Buy and its $16 price objective remains in place. Keep in mind that BofA’s discounted cash flow-based valuation is using Brent crude prices as follows:
- US$67/barrel for 2025,
- US$63/barrel for 2026,
- US$65/barrel for 2027,
- and US$70/barrel for 2028 beyond
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Please note that the analyst ratings and the price targets mentioned above were issued by each firm named specifically. Those are their ratings and targets. Oggonomics does not issue any formal ratings and price targets of its own on this stock. Investing involves significant risks, and no analyst reports, even those with very strong conviction, ever come with any guarantees of profits. These research reports also never issue any money-back guarantees in case you lose money.
