Petrobras Is Still A Solid Hold

Core Viewpoint - Petrobras stock appears undervalued but faces significant political and geographical risks, leading to a cautious outlook despite potential upside based on comparative valuations [2][13]. Company Overview - Petrobras, Brazil's largest national oil company, is heavily influenced by government control, with the Brazilian state holding over 50% of voting rights and approximately 29% of total shares [4]. - The company has undergone a strategic transformation, focusing on its pre-salt deepwater oil and gas resources, which has improved profitability and financial stability [6]. Financial Performance - In Q2 2024, Petrobras reported a 2.4% year-over-year increase in oil and gas production, with pre-salt fields contributing 81% to production [7]. - Despite generating an EBITDA of $12 billion and free cash flow of approximately $6.1 billion, the company faced a consolidated revenue decline of over 8% year-over-year [7]. - The adjusted net income was reported at $5.4 billion, impacted by a $2.3 billion exchange rate loss and a $2.1 billion tax agreement expense [7]. Capital Expenditure and Strategy - Petrobras plans to increase capital expenditures (CapEx) to between $13.5 billion and $14.5 billion for 2024, a rise of 7% to 15% compared to 2023 [8]. - The company is committed to deleveraging, with gross debt reduced to $59.6 billion and a cash position exceeding $13 billion [8]. Valuation and Market Position - Petrobras is currently trading at an EV/EBITDA ratio of 3x, still below the industry median, indicating a narrowing valuation discount [9]. - The potential upside for Petrobras stock could be approximately 50% higher than its current price based on comparative valuations [10]. Risks and Outlook - The company faces heightened political and geographical risks that could impact its financial position and CapEx returns if oil prices remain flat or decline [13]. - The stock may experience pressure as it approaches long-term resistance levels, and a strong catalyst for growth is deemed unlikely in the near term [12].