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Factors You Must Know Ahead of Petrobras (PBR) Q2 Earnings

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Petróleo Brasileiro S.A. or Petrobras (PBR - Free Report) is set to release second-quarter 2018 results on Aug 3. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at a profit of 28 cents on revenues of $26,215 million.

In the preceding three-month period, the Rio de Janeiro-headquartered integrated player delivered a positive earnings surprise of 68.42%, courtesy of higher oil prices.

Petrobras has a mixed earnings surprise history. It has missed estimates in two of the last four quarters, with the average negative earnings surprise being 11.79%.

Which Way Are Estimates Treading?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts expect from the company this earnings season.

The Zacks Consensus Estimate for second-quarter earnings has been revised downward by 2 cents over the last 30 days. However, the consensus mark reflects a whopping increase of almost 250% from the year-ago quarter.

Further, revenue estimates for the current quarter also compare favorably with the year-ago quarter’s revenues of $20,823 million.

Let’s take a look at the factors which are likely to impact Petrobras’ performance this quarter.

Factors at Play

Favorable crude pricing environment during second-quarter 2018 is likely to be beneficial for the company’s upstream business. The oil benchmark in the United States attained its highest settlement since November 2014 in the second quarter, despite record high domestic production.

Average West Texas Intermediate (WTI) crude prices for the month of April, May and June 2018 were recorded at $66.25, $69.98 and $67.87 per barrel, respectively, per data from the U.S. Energy Information Administration (EIA). These average prices were considerably higher than the year-ago respective prices of $51.06, $48.48 and $45.18.

Crude was supported by a variety of catalysts, including a series of buoyant weekly EIA crude inventory numbers, worries about tightening global supplies in the midst of strong demand and doubts regarding OPEC’s ability to boost production.

As it is, we appreciate Petrobras' encouraging portfolio of investments, particularly in Brazil’s pre-salt reservoirs that lie below the Espírito Santo, Campos and Santos basins in deep and ultra-deep water, which are expected to drive production growth of the company. Notably, per its ambitious five-year plans, the Brazilian oil giant intends to boost average production from an expected 2.7 million barrels of oil equivalent per day (Boe/d) in 2018 to 3.55 million Boe/d by 2022. The plan will be supported by the eight platforms slated to be brought into production in 2018 and 11 more coming online by 2022.

However, the company has been going through a rough patch lately. From the abrupt resignation of its CEO Parente in June to suspension of its $7 billion TAG sale by the Brazilian Court, the company is grappling with some major challenges as of now. During the quarter, Petrobras lost a wage dispute that is expected to cost the company around $4.5 billion. It also lost $622 million in a dispute against Vantage Drilling, which comes as another huge blow to the company, which is grappling with high debt burden.

Earnings Whispers

Our proven model does not conclusively show that Petrobras is likely to beat earnings estimates in the to-be-reported quarter, as it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate is pegged at 28 cents.

Zacks Rank: Petrobras currently holds a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

While an earnings beat seems uncertain for Petrobras, here are some other companies from the energy sector which, according to our model, have the right combination of elements to post an earnings beat in the to-be-reported quarter:

Penn Virginia Corp. (PVAC - Free Report) has an Earnings ESP of +6.72% and sports a Zacks Rank #1. The company is anticipated to release second-quarter earnings on Aug 7. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy Oil Corp. (MUR - Free Report) has an Earnings ESP of +5.99% and a Zacks Rank #2. The company is anticipated to report second-quarter earnings on Aug 8.

Sanchez Energy Corp. (SN - Free Report) has an Earnings ESP of +3.41% and a Zacks Rank #3. The firm is expected to announce second-quarter earnings on Aug 7.

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