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On Thursday, Jefferies analyst firm upgraded its rating for Petrobras (NYSE:PBR) stock from Hold to Buy, setting a new price target at $15.30. The decision comes as Petrobras management focuses on reducing costs and maintaining a base dividend, which Jefferies believes improves the stock’s risk/reward profile. The company currently offers an impressive 15.1% dividend yield and has maintained consistent dividend payments for eight consecutive years, according to InvestingPro data.
The firm noted that despite a 28% decline over the last twelve months, Petrobras shares are currently trading at a considerable discount compared to its global peers. The stock’s current valuation metrics support this view, with InvestingPro data showing an EV/EBITDA ratio of 3.8x and a P/E ratio of 8.5x. Specifically, the stock is trading at 3.4 times its enterprise value to debt-adjusted cash flow (EV/DACF), representing a 25% discount.
Jefferies highlighted Petrobras’ commitment to streamlining operations in the face of lower oil prices, which is seen as a positive move for the company. The analyst firm also pointed to the potential upside from the ramping up of new platforms, which is expected to contribute to the company’s fiscal year 2025 output growth target of 5%.
The upgrade reflects Jefferies’ view that the current share price does not fully reflect Petrobras’ growth prospects and its strategic initiatives to enhance profitability. The firm’s analysis suggests that there is room for Petrobras stock to re-rate as the company progresses with its plans.
The new price target of $15.30 represents Jefferies’ valuation for the ordinary (ord) and preferred (pref) lines of Petrobras shares. This adjustment signals the firm’s confidence in Petrobras’ future performance and its potential to deliver value to shareholders. InvestingPro analysis indicates a GOOD overall financial health score of 2.84, with particularly strong profitability metrics. Get access to 10 additional exclusive ProTips and comprehensive valuation analysis with an InvestingPro subscription.
In other recent news, Petrobras reported mixed results for the first quarter of 2025. The Brazilian oil company posted an adjusted recurring EBITDA of $10.7 billion, which was an 8% increase sequentially but fell about 3% below Bloomberg’s consensus estimates. The upstream division experienced a significant boost, with adjusted EBITDA rising by 50% quarter-over-quarter to $10 billion, driven by a 5% year-over-year increase in production volumes. However, this positive performance was partly countered by a 7% increase in lifting costs due to maintenance activities. The refining segment underperformed, with adjusted EBITDA declining 29% quarter-over-quarter to $1.07 billion, affected by reduced plant utilization and lower refining margins. Petrobras declared a dividend of 0.909 Brazilian reais per share, totaling $2.04 billion, which was approximately 7% below the consensus dividend estimate. Free cash flow improved to $4.5 billion, a 20% increase from the previous quarter, aided by reduced capital expenditure and a working capital release. The company also confirmed that the construction of new FPSOs is progressing as planned, with two new units expected to be operational later in 2025.
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