Petrobras Is Maintained at Buy by Goldman Sachs

Investors in Petroloe Brasileiro PBR need to pay close attention to the stock based on moves in the options market lately. That is because the Dec 20, 2024 $03.00 Put had some of the highest implied volatility of all equity options today.

What is Implied Volatility?

Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.

What do the Analysts Think?

Clearly, options traders are pricing in a big move for Petroloe Brasileiro shares, but what is the fundamental picture for the company? Currently, Petroloe Brasileiro is a Zacks Rank #5 (Strong Sell) in the Oil and Gas - Integrated- Emerging Markets industry that ranks in the Top 39% of our Zacks Industry Rank. Over the last 60 days, no analyst has increased his estimate for the current quarter, while two have revised their estimates downward. Our Zacks Consensus Estimate for the current quarter has moved from 98 cents per share to 82 cents in the same time period.

Given the way analysts feel about Petroloe Brasileiro right now, this huge implied volatility could mean there’s a trade developing. Often times, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.

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The Colombian division of Petrobras S.A. PBR, Petrobras International Braspetro BV,and the country’s state-owned energy giant, Ecopetrol S.A. EC, have finally received a favorable ruling from the Santa Marta Tribunal to continue with drilling and operational activities in the Tayrona drilling area after a previous setback from the Fourth Labor Court of the Santa Marta Circuit. Previously, the labor court had ruled to halt operations at the Sirius-2 well due to issues raised by the Indigenous Community of Taganga. This reversal of order marks a noteworthy step as the project aims to address Colombia’s alarming natural gas shortage.

Court Decision Eases PBR, EC and Colombia’s Energy Future

PBR and EC had earlier estimated that the Guajira offshore basin had 6 trillion cubic feet (tcf) of natural gas reserves and the discovery could have important implications for the declining gas supply of Colombia. Petrobras will act as an operator in the project with a 44.44% stake, partnering with Ecopetrol, holding a 55.56% stake. Both companies are focused on determining the commercial viability of the project and are viewing it as a critical resource to meet Colombia’s future energy needs.

Indigenous Consultation

The tribunal has further instructed the Ministry of the Interior to reassess within one month if any formal consultation is required with the Indigenous communities. This step will take care of the demands of the local communities and meet the energy goals of the country at the same time. The court approval allows the companies to carry on their activities in the Tayrona area, but concerning the local communities and the environment.

PBR and EC’s Zacks Rank and Key Picks

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. As part of its diversification strategy, the company has been working on multiple projects in South Africa.

The Colombia-based petroleum company, Ecopetrol S.A., is focused on identifying opportunities within the eastern Llanos Basin of Colombia, as well as in other areas in Colombia and northern Peru.

Currently, both companies have a Zacks Rank #3 (Hold).

Investors interested in the energy sector might look at some better-ranked stocks like Smart Sand, Inc. SND and Nine Energy Service, Inc. NINE.While Smart Sand currently sports a Zacks Rank #1 (Strong Buy), Nine Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Smart Sand produces northern white raw frac sand for the oil and gas industry. It offers proppant and related logistics services for oil and gas recovery from unconventional wells. SND’s expected EPS (earnings per share) growth rate for the next quarter is 125%, which compares favorably with the industry's growth rate of 13.68%.

Nine Energy Service, Inc. provides onshore completion and production services for unconventional oil and gas resource development. NINE’s expected EPS (earnings per share) growth rate for the next year is 35.77%, which compares favorably with the industry's growth rate of 19.80%.

Zacks Investment Research

Petrobras PBR is set to release third-quarter results on Nov. 7, 2024. The Zacks Consensus Estimate for earnings is pegged at 87 cents per share and that for revenues is pinned at $23.12 billion.

Let us delve into the factors that are likely to have influenced this integrated oil and gas company’s performance in the to-be-reported quarter. But first, it is worth taking a look at PBR’s performance in the last reported quarter.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Highlights of PBR’s Q2 Earnings

In the last quarter, PBR, one of the largest oil and gas producers in Brazil, reported earnings of 47 cents per ADS, in line with the Zacks Consensus Estimate, driven by year-over-year production gains. However, revenues of $23.47 billion missed the Zacks Consensus Estimate of $24.22 billion.

PBR beat the Zacks Consensus Estimate for earnings twice in the trailing four quarters while missing the same in the other two, delivering average negative surprise of 0.44%.

This is depicted in the graph below:

Petroleo Brasileiro S.A.- Petrobras Price and EPS Surprise

Petroleo Brasileiro S.A.- Petrobras price-eps-surprise | Petroleo Brasileiro S.A.- Petrobras Quote

PBR’s Trend in Estimate Revision

The Zacks Consensus Estimate for third-quarter 2024 earnings has witnessed two downward movements in the past 30 days. The estimated figure indicates a 9.53% year-over-year decrease. The Zacks Consensus Estimate for revenues indicates a 1.16% increase from the year-ago period.

Factors to Consider for PBR’s Q3 Performance

PBR's revenues are likely to have improved in the quarter to be reported. This multinational energy company earns money through a multi-faceted approach. It explores and produces oil and natural gas, refines crude oil into valuable products like gasoline and diesel, transports these products to markets and sells them to consumers and industries. Additionally, Petrobras generates revenues from natural gas, biofuels, petrochemicals and electricity generation. However, its profitability has been influenced by global oil prices, production costs, exchange rates and government regulations.

According to Petrobras' “Production and Sales Report” for the third quarter of 2024, the company produced 2.7 million barrels of oil equivalent per day. A highlight of the quarter was the peak production achieved at the FPSO Sepetiba in the Mero field, thanks to the start-up of three new wells and progress in the Búzios and Tupi fields. This increase in output is expected to have positively impacted the company’s revenues and cash flows.

Another positive development was the record high of 73% of pre-salt oil processed at Petrobras’ refineries, up 4% from the previous quarter. Pre-salt oil production enables Petrobras to produce higher-value products while also contributing to a reduction in greenhouse gas emissions. In August, pre-salt oils made up 76% of the processed volume, setting a new monthly record. On the sales side, the company saw a 4.2% increase in the production and sales of oil products in the domestic market compared with the previous quarter, driven by seasonal demand.

September was particularly strong, with refinery utilization hitting 97%, the highest rate for the year. This reflects the company’s operational efficiency, successful logistics and marketing strategies. Overall, PBR produced 1,818 thousand barrels of oil products per day, focusing on high-demand items such as diesel, gasoline and aviation fuel, which accounted for 68% of total output, despite maintenance shutdowns at several refineries.

But on a somewhat bearish note, the increase in Petrobras’ costs might have dented its to-be-reported bottom line. PBR’s pre-salt lifting costs in the second quarter increased around 9.6% year over year to $6.26 per barrel. This upward cost trajectory is likely to have continued in the third quarter due to the prevailing inflationary environment.

What Does Our Model Predict for PBR?

The proven Zacks model does not conclusively predict an earnings beat for Petrobras this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, that is not the case here.

PBR’s Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for this company is -4.23%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank of PBR: PBR currently carries a Zacks Rank #3.

Stocks to Consider

Here are some firms from the energy space that you may want to consider, as these have the right combination of elements to post an earnings beat this season.

Sunoco SUN has an Earnings ESP of +13.44% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The firm is scheduled to release earnings on Nov. 6. SUN’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed the remaining one, delivering an average surprise of 8.09%.

Helmerich & Payne HP has an Earnings ESP of +2.90% and a Zacks Rank #3 at present. The firm is scheduled to release earnings on Nov. 13.

HP’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed the remaining one, delivering an average surprise of 14.79%. It is engaged in the contract drilling of oil and gas wells in the United States and internationally.

TC Energy Corporation TRP has an Earnings ESP of +3.07% and a Zacks Rank #3 at present. The firm is scheduled to release earnings on Nov. 7. Valued at around $48.05 billion, TRP has gained 29.2% in a year.

The company is primarily focused on natural gas transmission through its 57,500-mile network of pipelines located in Canada, the United States and Mexico. TC Energy is also involved in other businesses, including power generation, natural gas storage and crude oil pipelines.

Zacks Investment Research

Petrobras (PBR) ended the recent trading session at $13.45, demonstrating a -0.15% swing from the preceding day's closing price. The stock's change was more than the S&P 500's daily loss of 1.86%. Elsewhere, the Dow saw a downswing of 0.9%, while the tech-heavy Nasdaq depreciated by 2.76%.

Coming into today, shares of the oil and gas company had lost 9.9% in the past month. In that same time, the Oils-Energy sector lost 0.42%, while the S&P 500 gained 1.01%.

The upcoming earnings release of Petrobras will be of great interest to investors. The company's earnings report is expected on November 7, 2024. The company is expected to report EPS of $0.92, up 6.98% from the prior-year quarter. Meanwhile, the latest consensus estimate predicts the revenue to be $23.16 billion, indicating a 9.38% decrease compared to the same quarter of the previous year.

For the full year, the Zacks Consensus Estimates are projecting earnings of $2.52 per share and revenue of $93.58 billion, which would represent changes of -39.71% and -8.62%, respectively, from the prior year.

Investors should also note any recent changes to analyst estimates for Petrobras. Such recent modifications usually signify the changing landscape of near-term business trends. Therefore, positive revisions in estimates convey analysts' confidence in the company's business performance and profit potential.

Our research suggests that these changes in estimates have a direct relationship with upcoming stock price performance. To capitalize on this, we've crafted the Zacks Rank, a unique model that incorporates these estimate changes and offers a practical rating system.

The Zacks Rank system, which ranges from #1 (Strong Buy) to #5 (Strong Sell), has an impressive outside-audited track record of outperformance, with #1 stocks generating an average annual return of +25% since 1988. Over the past month, there's been a 6.42% rise in the Zacks Consensus EPS estimate. Petrobras currently has a Zacks Rank of #3 (Hold).

Valuation is also important, so investors should note that Petrobras has a Forward P/E ratio of 5.36 right now. This signifies a premium in comparison to the average Forward P/E of 4.64 for its industry.

One should further note that PBR currently holds a PEG ratio of 0.2. Comparable to the widely accepted P/E ratio, the PEG ratio also accounts for the company's projected earnings growth. The Oil and Gas - Integrated - Emerging Markets industry currently had an average PEG ratio of 0.2 as of yesterday's close.

The Oil and Gas - Integrated - Emerging Markets industry is part of the Oils-Energy sector. With its current Zacks Industry Rank of 98, this industry ranks in the top 39% of all industries, numbering over 250.

The Zacks Industry Rank gauges the strength of our industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Be sure to use Zacks.com to monitor all these stock-influencing metrics, and more, throughout the forthcoming trading sessions.

Zacks Investment Research

SLB SLB announced that its joint venture, OneSubsea, was awarded a prominent engineering contract by BP plc BP for the Kaskida project, a significant deepwater development in the Gulf of Mexico.

The project will involve implementing a subsea boosting system, which will mark the first engineering, procurement, and construction agreement between SLB’s OneSubsea and BP for this specific technology.

The Kaskida project, a greenfield development, will include a high-pressure subsea pump system from OneSubsea, complete with integrated power and controls umbilical, as well as additional topside equipment. This advanced subsea boosting system is designed to deliver artificial lift, essential for enhancing production. This technology aims to increase operational efficiency and ensure optimal resource extraction by accelerating reserve recovery and minimizing energy consumption.

BP has highlighted Kaskida as its pioneering Gulf of Mexico project that will require well equipment rated for pressures up to 20,000 psi, setting a benchmark for deepwater developments. In recent months, BP and OneSubsea expanded their collaboration, announcing multiple contracts across various regions.

Notably, in July, BP awarded an engineering, procurement, construction and installation contract to the Subsea Integration Alliance, a strategic partnership between OneSubsea and Subsea7, for the North Sea oil and gas fields. Later, BP and the Subsea Integration Alliance signed an agreement to create a shared platform for subsea expertise to streamline their joint operations on future projects.

OneSubsea recently secured a contract with Petrobras PBR, Brazil’s national energy firm, to provide full subsea equipment for a deepwater project in Brazil’s Campos Basin. SLB stated that implementing an effective subsea solution will enhance the recovery from the mature oilfield giant.

This series of agreements with global energy majors underscores OneSubsea’s reputation as a go-to provider for complex, high-pressure subsea systems. For BP, the Kaskida project represents a key step in maximizing resource output from high-pressure reservoirs in deepwater environments, setting a standard for sustainable and efficient offshore energy production.

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