Corruption Probe Still Providing Headline Risk To Petrobas Shares

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Petroleo Brasileiro SA Petrobras (ADR) PBR has announced its 2017-2021 Business and Management Plan. While this could have a “slightly positive impact” on the company’s shares in the near term, shares could be under significant pressure in the medium term due to headline risk from the corruption probe and litigation, Barclays’ Paul Y. Cheng said in a report.

Analyst Cheng maintained an Underweight rating on Petrobas, with a price target of $9.

The Plan

Most investors are likely to take much of the 2017-2021 Plan “with a grain of salt,” Cheng commented. The new plan does provide a roadmap to deleveraging, which was completely missing previously. “For that, we think it is an incremental positive and helps sketch a possible turning point along with a gradually improving and more business friendly domestic political environment.”

Petrobas revised its Brazil oil production guidance to 2.77 million b/d by 2021, versus its prior guidance of 2.7 million b/d by 2020. This was unexpected, the analyst noted, adding, “It is a combination we think that is unlikely to occur; as the company tightens its belt we think production growth will be harder to come by, not the other way around.”

Headline Risk

There is headline risk in the medium term related to the corruption probe and litigation matters, and these could result in a meaningful overhang on the company’s shares, Cheng commented.

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Posted In: Analyst ColorShort IdeasReiterationAnalyst RatingsTrading IdeasBarclaysPaul Y. Cheng
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