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Petrobras (PBR) Okays Discovery Global Lawsuit Settlement

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Brazilian energy giant Petróleo Brasileiro S.A. or Petrobras’ (PBR - Free Report) board of directors recently consented to settle an investor lawsuit filed by a group of affiliates of Discovery Global Citizens Master Fund, Ltd to recoup losses related to corruption.

Numerous lawsuits have been filed against the state-run company due to its involvement in a massive corruption scandal and money laundering. Various senior executives of the company have been accused of taking bribes for inflated contract schemes. The lawsuits filed by shareholders will help recoup losses triggered by the various corruption, money laundering and bribery schemes tied to company contracts. The settlement will resolve uncertainties, costs and potential liabilities associated with the disputes.

Prior to this, Petrobras agreed to settle a shareholder lawsuit filed by a major fund company Vanguard on Jun 19. Before that, the company already reached a settlement in 19 individual actions out of the total 27 that were consolidated with class action. With the Vanguard and Discovery Global settlements, the company settled 21 individual actions out of the total 27

Earlier this year, the company set aside $372 million for the settlement of lawsuits. This was $8 million more than what had been provisioned in September 2016. After the Vanguard settlement the company raised the financial provision from $372 million to $445 million.  Though the board of directors did not disclose the exact financial terms of the Discovery Global settlement, the company has further raised the provision to $448 million.

Zacks Rank and Key Picks

Petrobras operates in segments like exploration, refining, marketing, transporting, distribution and biofuels. Petrobras’ mismanagement and involvement in money laundering and corruption cases have worsen the credit metrics of the company. Year to date, Petrobras’ shares have lost 0.3% against roughly 4.4% gain recorded by the industry.

However, Petrobras’ solid portfolio of investments in the Brazil’s pre-salt reservoirs along with cost-improvement measures and divestment of non-core assets are expected to shore up its financials. The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked players from the broader energy space are TransCanada Corporation (TRP - Free Report) , Lonestar Resources US, Inc. (LONE - Free Report) and Range Resources Corporation (RRC - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TransCanada delivered an average positive earnings surprise of 4.06% in the trailing four quarters.

Lonestar Resources delivered an average positive earnings surprise of 39.71% in the trailing four quarters.

Range Resources delivered an average positive earnings surprise of 51.82% in the trailing four quarters.

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