Petrobras Worth Just $2.00, Credit Suisse Says

• Shares of Petroleo Brasileiro SA Petrobras (ADR) PBR are down 14 percent in the last 5 trading days, and are currently trading around their 52-week low.
• Credit Suisse’s Andre Natal initiated coverage of the company with an Underperform rating and a price target of $2.
• The company’s current share price implies a combination of several events that are unlikely to occur simultaneously, Natal stated.

Analyst Andre Natal mentioned that Petrobras’s current share price implies a very unlikely combination of future events, including a sharp recovery in oil prices.

The analyst cited the following that investors need to believe in, in order to accept that Petrobras’s shares are fairly priced now:

1. The company will divest $43 billion at a premium and reduce its operating expenditure by $12 billion.
2. Brent prices will more than double to $80 per barrel by 2020.
3. Fuels will be priced 10 percent above import parity, despite market-share loss.
4. No further BRL depreciation.
5. Production will reach the targets set for 2020.
6. Petrobras’s capital expenditure will decline by $15 billion in four years and have no impact on production.
7. No new projects will be executed.
8. No new cash drain will take place.
9. The company’s $9 billion funding needs will be fully addressed.
10. All these things will happen at the same time.

Natal believes that although management appears to be strongly committed to deleveraging the company, this will be difficult to achieve amid the current market conditions.

“After more than a decade working in the oil industry in Brazil, we see many challenges ahead,” Nadal wrote, while adding that all these ten things are unlikely to occur simultaneously.