Energy stock to watch: Petroleo Brasileiro SA Petrobras (ADR) (NYSE: PBR)

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Petroleo Brasileiro SA Petrobras (ADR)(NYSE: PBR) has turned to profit and reduced its massive debt load in the fourth quarter of 2016, due to the higher oil prices. PBR has made a net profit of 2.51 billion Brazilian reais ($813 million) in the fourth quarter, turning around a 36.94 billion real loss a year earlier due to heavy asset write-downs. Hence the stock recovered over 1% in the pre-market session today on March 22nd, 2017.

However, this result is well below market expectations, as the analysts were forecasting 3.7 billion reais in profit. Despite the fourth-quarter growth, PBR has posted a net loss of 14.82 billion reais for 2016 due to heavy impairment charges on assets earlier in the year, compared to the 34.84 billion real loss in 2015.

Moreover, the three years of corruption investigations, a downturn in global oil prices and Brazil’s worst recession on record have taken their toll on Petroleo Brasileiro. The company has cut its investments by about two-thirds, to about $15.9 billion last year from almost $49 billion in 2013. Further, Petroleo Brasileiro remains the most indebted oil major in the world and has the total debt load in 2016 of $118.37 billion, which is down 6.3% from a year earlier. Petroleo Brasileiro has plans to reduce that burden is a massive divestment program, which was delayed from December until last week by a temporary suspension from Brazil’s federal auditing court. However, PBR has a goal of selling $21 billion in assets in 2017 and 2018.

Meanwhile, in the fourth quarter Petroleo Brasileiro had strong operational results, such as record oil production and cash generation. This is due to the fact, that the Brazilian President Michel Temer, who took office in May 2016, has allowed the company to sell fuel at a profit to Brazilian consumers. In addition, Petroleo Brasileiro had a positive cash flow, along with earnings before interest, taxes, depreciation and amortization (Ebitda), growing 31% in the fourth quarter to 24.79 billion reais. That has came despite a 17% fall in the revenue to 70.49 billion reais.

Petroleo Brasileiro stock has risen 58.17% in the last one year (source: Google Finance). According to, 2 analysts has covered the stock while recommending a “Moderate Buy”. PBR has an average price target of $11, which is a further upside of 24.86%.

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