Is the Petrobras Long-Term Outlook Finally More Positive Than Negative?

24/7 Wall St. has been very cautious on Petrobras for quite some time, but actions and the news flow in recent months has leaned a bit more positive than negative. We wanted to see if this adds up to a better long-term outlook than in prior reviews.

The latest news is that Petrobras may be interested in selling part of its fuel wholesale and retail operations. This of course comes with some risk, but it would help Brazil’s national oil asset pay down debt. Regardless whether this occurs, it was floated out there in a disclosure made mid-week that the company may be open to such efforts.

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This week brought news of a key analyst upgrade as well. HSBC Securities raised its rating to Hold from Reduce. Such an upgrade might not seem that exciting compared to being raised to Buy or Strong Buy, but think about it: this is one less analyst telling clients that they should be sellers of Petrobras. Sometimes simply removing key negative overhangs is all the bulls have to get excited over.

Another bit of positive news came from Petrobras lowering its capital spending plans. This sounds bad for most oil giants, but lower oil prices are only one consideration here. The real boost from this is that the Brazilian government can force Petrobras to operate at losses, and Petrobras has no real say in the matter.

The Brazilian government already controls the oil and gas giant, so the desire to assure or take responsibility for the debt does not seem likely. Keep in mind that Petrobras already had a 100-year debt offering just a month earlier.

Petrobras shares were up almost 2% at $8.81 in late morning trading on Thursday. This is ahead of a long weekend in New York trading, but the rest of the world will be open for normal trading on Friday. Petrobras has a 52-week trading range of $4.90 to $20.94.

It would require more than just a substantial rally for Petrobras shares to get anywhere close to its levels from before 2014. Investors are moving beyond the news flow of corruption and arrests. That may have been a very dark period at that time, but time has a way of healing all wounds.

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