Citi maintains neutral rating on Petrobras stock amid price cut

On Monday, Citi analysts reiterated a Neutral rating for Petrobras stock (NYSE: PBR) with a price target of $12.50. The oil giant, which boasts a market capitalization of $72.5 billion and maintains a "GOOD" financial health score according to InvestingPro analysis, currently trades below analyst consensus targets ranging from $12.50 to $17.00. This decision follows Petrobras’s announcement of a 5.6% reduction in gasoline prices to fuel distributors, effective from Tuesday. The price will decrease from R$3.02/L to R$2.85/L, reflecting a trend of lower oil prices. With annual revenues of nearly $87 billion and an impressive EBITDA of $34.4 billion in the last twelve months, Petrobras maintains substantial operational scale despite price adjustments.

The recent price adjustment marks the first change since July 2024. According to the Brazilian Association of Fuel Importers (ABICOM), domestic gasoline prices are currently 2% above international parity. The new reduction is expected to bring prices below international parity pricing (IPP).

Citi analysts noted that while the move could have adverse effects on Petrobras’s revenue and EBITDA, potentially impacting these figures by approximately $690 million annually, it could also have mixed implications for the fuel distribution sector. The lower gasoline price might reduce the competitiveness of smaller distributors, affecting their working capital investments, but it could also cause a negative inventory effect on second-quarter EBITDA margins.

In the broader energy market, the price cut might influence ethanol prices, which could decrease due to energy parity with Gasoline C. This development is seen as negative for Petrobras’s supply and export coverage, according to the analysts.

Overall, the price reduction reflects Petrobras’s response to the current oil price environment, while the implications for the company’s financial performance remain under observation. According to InvestingPro data, the company currently offers a significant 15.4% dividend yield and appears undervalued based on its Fair Value assessment. For deeper insights into Petrobras’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, Petrobras reported its mixed first-quarter 2025 financial results, showing an 8% sequential increase in adjusted recurring EBITDA to $10.7 billion, though this figure was approximately 3% below Bloomberg consensus estimates. The company’s upstream division experienced a notable 50% quarter-over-quarter rise in adjusted EBITDA to $10 billion, driven by a 5% year-over-year increase in production volumes. However, refining margins weakened, with adjusted EBITDA in this segment falling 29% quarter-over-quarter to $1.07 billion, primarily due to lower plant utilization and a contraction in gasoline refining margins. Petrobras also declared a dividend of 0.909 Brazilian reais per share, totaling $2.04 billion, which was 7% below consensus estimates.

In other developments, Jefferies upgraded Petrobras stock from Hold to Buy, setting a new price target of $15.30, citing the company’s cost-reduction efforts and commitment to maintaining a base dividend. Jefferies noted that Petrobras shares are trading at a significant discount compared to global peers, with a 25% discount in enterprise value to debt-adjusted cash flow. Additionally, Citi initiated coverage on Petrobras with a Neutral rating and a price target of R$35.00, highlighting the potential for robust ordinary dividends through 2025 but expressing caution due to oil price uncertainties. Lastly, Petrobras announced a 5.6% reduction in gasoline prices to distributors, effective from June 3, as part of its pricing strategy.

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