Petróleo Brasileiro S.A. (NYSE: PBR), or Petrobras, is not your traditional oil giant. Being a Brazilian state-controlled oil company with shareholder rights further down the line than most oil giants means that there are some unique issues for investors to consider.

Credit Suisse analyst Regis Cardoso believes that Petrobras is a fine place to shine. The analyst upgraded the stock to Outperform from Neutral and raised the price target to $21 from $15 per American depositary share. Monday’s call came after updated cash flow models reflect Credit Suisse’s revised Brent price forecast and rolling that outlook out to the end of 2019 with a lower cost of capital.

Petrobras also was called an investment in which momentum meets valuation, with optionality related to divestments and the transfer of rights renegotiation process.

Regis Cardoso called Petrobras a story in which yield meets growth. The report said:

Rarely do stocks combine both high free cash flow yield and growth. That is exactly what PBR is poised to offer shareholders, at least for the next two years. In our view, production is set to increase substantially (c.14% p.a.) with relatively low execution risk due to the rampup of 7 FPSOs added over the last twelve-months. Capex should remain at low levels and Brent prices relatively high… Finally, the cash generation has a clear use with the company set to reduce leverage, a rather straightforward way for minority shareholders to capture value.

The report does have at least some caution. Short-term tailwinds are expected to turn into headwinds in 2021 as its production flattens out and as capital spending mounts. On top of oil prices being a risk for any oil company, Petrobras also has contingent liabilities from payouts in Brazil and pricing policy risk, as well as risks tied to a ramp-up in production and environmental issues.

Credit Suisse also pointed out a troubled operating history from Petrobras. The years of 2010 to 2014 were marked by high capital spending, negative free cash flows and increasing financial leverage, but in 2015 to 2017 the company had to carry out a turnaround to overcome both financial and reputational crises. The company further noted that much of the balance sheet risk was much mitigated in 2018 and that the company is now past electoral and trucker strike risks.

The present looks much more inspiring to the firm, with the first few years ahead, 2019 and 2020, likely to be very special years with low-risk production ramp-up, low capital spending and high free cash flow.

Petrobras was last seen trading up 3.3% at $17.04 on Monday afternoon, in a 52-week range of $9.02 to $17.90. Its consensus analyst target price from Refinitiv is $17.89.

For Wall Street watchers, this meets the highest analyst price target of the tracked sell-side analyst target prices. This analyst call also represented implied 27% upside from Friday’s $16.50 closing price.

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