Citi sets Petrobras stock with Neutral rating, R$35 target

On Thursday, Citi initiated coverage on Petroleo Brasileiro SA (PETR4:BZ) (NYSE: PBR), commonly known as Petrobras, with a Neutral rating and a price target of R$35.00. The research firm’s analysts noted the Brazilian oil company as a solid carry option in the market, citing its potential to announce robust ordinary dividends through 2025. According to InvestingPro data, Petrobras currently offers a substantial 15.17% dividend yield and has maintained dividend payments for eight consecutive years, demonstrating its commitment to shareholder returns. The company’s shares currently appear undervalued based on InvestingPro’s Fair Value analysis.

Petrobras is poised for two possible positive developments: the start of a potential election trade and the likelihood of increased foreign capital inflow into high-liquidity Brazilian stocks. Despite these prospects, Citi analysts pointed out that the ongoing uncertainty in oil prices is dampening investor enthusiasm for Petrobras as a dividend investment opportunity in the short term. With a P/E ratio of 8.41 and EV/EBITDA of 3.79, the stock trades at relatively modest valuations. For deeper insights into Petrobras’s valuation metrics and future prospects, investors can access comprehensive analysis through InvestingPro’s detailed research reports.

The analysts forecast that Petrobras’s dividend yield (DY) for the next three quarters of 2025 could be around 7% and approximately 9% in 2026. While these figures are promising, they are still significantly lower than previous yields. Citi’s stance remains cautious due to the unpredictability of oil price recovery and the necessity for Petrobras to accelerate its investment activities.

In conjunction with their analysis of the local Brazilian market, Citi has also maintained its price target for Petrobras’s American Depositary Receipts (ADRs) at $12.50. The initiation of coverage with a Neutral rating aligns with Citi’s existing rating for the company’s ADRs, providing a consistent outlook for investors considering positions in both markets.

In other recent news, Petrobras reported mixed results for the first quarter of 2025. The company achieved an adjusted recurring EBITDA of $10.7 billion, marking an 8% increase from the previous quarter but falling about 3% short of Bloomberg’s consensus estimates. The upstream division showed strength with a 50% quarter-over-quarter increase in adjusted EBITDA, driven by a 5% year-over-year rise in production volumes. However, higher lifting costs and weaker refining margins, particularly for gasoline, offset these gains. The refining segment’s adjusted EBITDA fell 29% due to lower plant utilization and a completed revamp of the RNEST refinery.

Petrobras declared a dividend of 0.909 Brazilian reais per share, totaling $2.04 billion, which was about 7% below the consensus estimate. The company also saw a 20% increase in free cash flow, supported by reduced capital expenditure and a working capital release. Meanwhile, Jefferies upgraded Petrobras’ stock rating from Hold to Buy, setting a price target of $15.30. Jefferies cited Petrobras’ focus on cost reduction and strategic initiatives as factors that could enhance profitability and deliver shareholder value.

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