Brazil oil giant Petroleo Brasileiro S.A., aka Petrobras (PBR - Free Report) earned its second credit rating upgrade in the last five years as the rating agency Moody’s Investors Service raised the company’s corporate debt rating by one level to B1. Moody’s has also revised the outlook for all ratings from stable to positive, indicating that the company is no longer faces the risk of being downgraded any time soon. The positive outlook implies that further positive rating actions can occur provided the company's liquidity and overall credit risk continues to improve, making it more attractive for investments.
In Feb 2015, Petrobras lost its investment grade at Moody’s due to severe corruption charges against the company. Many of the company’s officials were arrested as a part of the Operation Car Wash investigation. In Feb 2016, the company was downgraded to the lowest speculative level. However, in Oct 2016, Moody’s had upgraded the company’s ratings to B2.
Further, a couple of days back, Moody’s upgraded all ratings for Petrobras on account of improving financial metrics and liquidity of the company in the recent quarters. The company’s debt refinancing transactions and disciplined operational management also attributed to the ratings upgradation and positive outlook.
Petrobras’ shares which had plummeted to around $3 in Jan 2016, rallied more than three times, closing at $9.66 as on Apr 12. This can be attributed to the company’s lower capital spending initiatives, increase in the oil prices, strengthening Brazilian currency and a favorable regulatory environment in Brazil. These tailwinds have improved the liquidity position and the overall financials of the company to some extent.
The new fuel pricing policy adopted by the company has also helped it to increase margins in the downstream operations. The company which is burdened by huge debt has reduced its capital investment for 2017–2021 by 25% not only to curb costs but also to clear debts.
Currently Petrobras is concentrating on improving its liquidity and operational performance. The company’s efforts to deleverage or at least refinance its debt obligations to extend its maturity also work in favor. The company’s rigorous divestment goals will help in reinstating its financial health by mitigating the leverage.
However, the company at present is reeling under immense debt burden which can’t be resolved smoothly until the cash flow is positive. Petrobras still has $8.8B in debt maturing in 2017 and another $11.3B maturing in 2018. Also, any negative developments from the pending litigation cases against the company may hamper the financials adversely. Therefore the state- run integrated energy company carries a Zacks Rank #3 (Hold).
The company has outperformed the Zacks categorized Oil & Gas Emerging Markets Integrated industry over the past year. During the aforesaid period, while shares of Petrobras rallied almost 46%, the broader industry gained around 28%.
Better-ranked players in the broader industry include Penn Virginia Corp. (PVAC - Free Report) , Antero Resources Corp. (AR - Free Report) and Crescent Point Energy Corp. (CPG - Free Report) . All the three companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Pen Virginia reported positive average earnings surprise of 36.67% in the last four quarters.
Antero Resources reported positive average earnings surprise of 239.1% in the last four quarters.
Crescent Point Energy reported positive average earnings surprise of 127.2% in the last four quarters.
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