{"id":86318,"date":"2023-11-19T10:45:11","date_gmt":"2023-11-19T15:45:11","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/petrobras-under-valued-under-appreciated-still-a-robust-dividend-play-nysepbr\/"},"modified":"2023-11-19T10:45:15","modified_gmt":"2023-11-19T15:45:15","slug":"petrobras-under-valued-under-appreciated-still-a-robust-dividend-play-nysepbr","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=86318","title":{"rendered":"Petrobras: Under Valued & Under Appreciated – Still A Robust Dividend Play (NYSE:PBR)"},"content":{"rendered":"
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<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

We previously covered Petrobras (NYSE:PBR<\/span>) in August 2023, discussing the changes in its dividend policy after the new CEO took over, marking the end of its hyper-pandemic payouts and yields, worsened by the intensified low carbon investments over the next few years.<\/span><\/p>\n

However, we maintained our Buy rating then, since the company remained a low-cost oil\/ gas producer, with the elevated Brent spot prices likely to sustain its rich variable dividend payouts.<\/p>\n

In this article, we will be discussing PBR’s mixed prospects, as the volatile spot prices and elevated expenses trigger its impacted profitability and dividend payouts.<\/p>\n

While we reiterate our Buy rating, thanks to the intact dividend investment thesis, we also recommend investors to wait for a moderate pullback, due to the stock’s tremendous rally by +74% YTD.<\/p>\n

The PBR Dividend Investment Thesis Remains Robust<\/strong><\/h2>\n

For now, PBR has delivered a mixed FQ3’23 earnings call, with <\/span>revenues of $25.55B (+11.2% QoQ\/ -21.1% YoY) and EPS of 2.04 reais (-7.6% QoQ\/ -42.2% YoY).<\/span><\/p>\n

Its top and bottom lines appear to underwhelm on a QoQ basis indeed, despite the notable expansion in the Brent crude oil spot prices to $86.76 (+10.6% QoQ\/ -13.9% YoY).<\/p>\n

Its profitability headwinds is mostly attributed to the drastic increase in PBR’s operating expenses to $3.59B (+13.9% QoQ\/ +52.1% YoY) in the latest quarter.<\/p>\n

This naturally translates to its impacted adj Free Cash Flow generation of $8.36B (inline QoQ after accounting for divestiture\/ -17.3% YoY), further contributed by the intensified FQ3’23 capital expenditures of $3.18B (+9.2% QoQ\/ +63.9% YoY).<\/p>\n

Then again, these are mostly old news, since the intensified investments have been well communicated in PBR’s previous earnings calls, attributed to the Strategic Plan 2024-2028, which underlines the management’s focus to be a well-diversified energy company with multiple low carbon businesses.<\/p>\n

If any, investors may be encouraged by the notable moderation in the FY2023 capex from the original guidance of $16B (+70.3% YoY) to $13B (+38.4% YoY), implying that the FQ4’23 dividends may be improved than that announced for FQ3’23, assuming that nothing changes.<\/p>\n

In addition, PBR’s net debt position of $43.72B (+3.6% QoQ\/ -7.9% YoY) remains somewhat stable, with a weighted average maturity term of 11.5 years, implying that the oil\/ gas producer remains well positioned for its aggressive growth plans ahead.<\/p>\n

Investors may want to note that its expansion efforts are already paying off extremely well, with the management achieving an impressive production of 3.98M boed in FQ3’23 (+7.8% QoQ\/ +9.1% YoY).<\/p>\n

FQ4’23 is likely to bring forth additional output of up to 4.18 M boed (+5% QoQ\/ +12.9% YoY) as well, with the newly commissioned wells contributing to the PBR management’s raised guidance for FY2023.<\/p>\n

<\/h2>\n

PBR<\/strong> Valuations<\/strong><\/p>\n

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\"PBR<\/span>
\n

Seeking Alpha<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

On the one hand, the PBR stock’s FWD valuations remain impacted at FWD P\/E of 4.23x and FWD Price\/ Cash Flow of 2.68x, compared to its 3Y pre-pandemic mean of 10.44x\/ 5.93x and the sector median of 9.58x\/ 4.74x, respectively.<\/p>\n

On the other hand, there is already great improvements from its 1Y mean of 3.71x\/ 2.12x, likely attributed to the improved market sentiments surrounding Brazil’s geopolitical stability, as the new CEO continues to deliver excellent growth as discussed above.<\/p>\n

The Consensus Forward Estimates [USD]<\/strong><\/p>\n

\n

\"The<\/span>
\n

Tikr Terminal<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

For now, we believe that the discounts observed in PBR’s stock valuations are still unwarranted, since the oil\/ gas producer is expected to generate robust FCF through FY2025, sustaining its variable dividend pay outs.<\/p>\n

Despite the revised shareholder return policy to only 45% of FCF, compared to the previous 60%, it appears that the stock’s dividend investment thesis remains excellent, with the consensus still estimating an FY2024 dividend payout per share of $1.54, implying an excellent forward dividend yield of 9.6% based on the current share prices.<\/p>\n

While the number may seem to be underwhelming compared to PBR’s 4Y average of 20.85%, this FWD yield already exceeds the sector median of 3.70% and the US Treasury Yields of between 4.44% and 5.40%.<\/p>\n

Most importantly, its dividends remain more than safe, based on the TTM Interest Coverage ratio of 15.75x and TTM Free Cash Flow Yield to Dividend Yield Ratio of 16.64%, compared to the sector median of 7.89x and 3.08%, respectively.<\/p>\n

So, Is PBR Stock A Buy<\/strong>, Sell, Or Hold?<\/strong> <\/h2>\n

PBR 5Y Stock Price<\/strong><\/p>\n

\n

\"PBR<\/span>
\n

Trading View<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

For now, PBR has already rallied tremendously to retest its critical 2018 to 2023 resistance level of $16s, with it remaining to be seen if the stock is able to break out.<\/p>\n

At best, we believe that the stock may trade sideways at current levels, if not retrace to its support levels of $14s in the near term. This is because the Brent crude oil has already moderated to $80.62 at the time of writing (-11.8% MoM\/ -7.8% YoY), down drastically by -16.4% from the YTD peak of $96.55 in September 2023.<\/p>\n

Depending on how things develop over the next one and a half months, PBR’s FQ4’23 results may potentially underwhelm on a QoQ and YoY basis, with the expanded FCF from reduced capex and raised output guidance negated by the lower spot prices and forex headwinds, as similarly observed in FQ3’23.<\/p>\n

Therefore, any investors looking for special dividends in the upcoming quarter may want to temper their near-term expectations.<\/p>\n

Brent Crude Oil Spot Prices<\/strong><\/p>\n

\n

\"Brent<\/span>
\n

Market Insider<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

However, with the Brent crude oil still up by +34.3% from the 2019 averages of $60, we believe that PBR may still have a few more quarters of expanded FCF generation, with the EIA still forecasting elevated spot prices of $93 through 2024.<\/p>\n

For now, while we may continue rating the PBR stock as a Buy, there is no specific recommended entry point since it depends on individual investor’s risk appetite and dollar cost averages.<\/p>\n

Generally, we recommend waiting for a moderate pullback for an improved margin of safety and expanded forward yields. Patience may be prudent here.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

We previously covered Petrobras (NYSE:PBR) in August 2023, discussing the changes in its dividend policy after the new CEO took over, marking the end of its hyper-pandemic payouts and yields, worsened by the intensified low carbon investments over the next few years. However, we maintained our Buy rating then, since the company remained a low-cost […]<\/p>\n","protected":false},"author":1,"featured_media":36952,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-86318","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nPetrobras: Under Valued & Under Appreciated - Still A Robust Dividend Play (NYSE:PBR) | iFintechWorld<\/title>\n<meta name=\"description\" content=\"We previously covered Petrobras (NYSE:PBR) in August 2023, discussing the changes in its dividend policy after the new CEO took over, marking the end of\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=86318\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Petrobras: Under Valued & Under Appreciated - 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