Credit Suisse Considers Petrobras Valuation Under Different Scenarios

Although conditions have materially improved in recent months, especially in terms of liquidity, Credit Suisse’s Andre Natal believes oil prices would need to rebound to more than $80 for any meaningful upside for Petroleo Brasileiro SA Petrobras (ADR) PBR.

Natal upgraded the rating on the company from Underperform to Neutral, while raising the price target from $2.00 to $8.60.

Many Potential Scenarios

The analyst pointed out there could be many different possible futures for the company, each of which would lead to a different valuation.

Firstly, Natal said management can “add considerable value through cost and capex efficiency, divestments, fuel pricing, and strategic changes.”

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“Excitement might continue on the back of positive news flow, but we don't see a compelling risk/return ratio that could offer a considerable margin of safety,” the analyst mentioned, while adding that at this point, it is a macro call, depending on higher oil prices.

Significant Upside Unlikely

On the other hand, while there were several scenarios that suggest room for value creation and deleveraging relative to the current scenario, any meaningful upside potential from the current stock valuation was likely only in very few scenarios.

“There is room for optimism if investors expect oil to rebound sharply, but a high probability would have to be attributed to the more bullish scenarios to justify significant upsides at this point,” Natal added.

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