Morgan Stanley Still Underweight Petrobras, Sees 'More Questions Than Answers'

In a report published Tuesday, Morgan Stanley analyst Bruno Montanari maintained an Underweight rating on

, while lowering the price target from $8.50 to $8.00. The analyst's concerns regarding the company are still unresolved, with questions about how the company intends to deleverage itself and its fuel pricing formula still pending answers. Following the press conference held by Petrobras, regarding its 2015-19 Business Plan, the analyst believes that while there appears to be a "leaner curve" to E&P, the target still appears aggressive, given the supply chain bottlenecks in Brazil. According to the Morgan Stanley report, with regarding to refining, "uncertainty on pricing formula and timing of next hike will disappoint PBR bulls; CEO was clear in dismissing price hikes in the ST." "The new $42.6B inflow from restructuring, demobilization of assets and divestments in 2017–18 remains very difficult to understand. This is a key part of the deleveraging story and management did not provide details," Montanari stated. While the company's presentation stated that there was "no forecast of an equity issuance," the analyst expressed concern regarding the lack of comments regarding how the investment grade rating of the stock would be sustained. The peak production estimate for 2023 has been reduced, while the production curve for 2015-2020 has been maintained. "PBR will continue to generate negative free cash flows through 2018 and … cash flows will primarily service the bondholder, to the detriment of the equity holder," Montanari added.