IBD Stock Analysis
- Near 14.98 cup-base buy point, but could soon have a handle
- Earnings soared 1,273% in 2021, with strong growth this year
- Dividend yield tops 44%
Industry Group Ranking
* Not real-time data. All data shown was captured at
1:53PM EDT on
Brazilian oil major Petrobras is the IBD Stock Of The Day with PBR stock working on a handle buy point as earnings boom amid high oil prices The oil stock also offers a juicy, if controversial, dividend.
Petrobras (PBR) produces 1,852,000 barrels of oil products per day. It owns 5,042 oil and gas wells, 123 owned and chartered vessels, and 12 refineries.
Founded in 1953, the company is based in Rio de Janeiro. Top global markets include Brazil (73% of revenue), the U.S. (6.6%) and China (4.9%).
But energy stocks swing with energy prices. Crude oil prices are well off their June highs, dropping significantly on Wednesday. U.S. natural gas prices are still close to long-term highs, with European natgas prices extremely high.
PBR Stock Eyes Lower Handle Entry
Shares of Petrobras dipped 0.6% to 13.76 on the stock market today, edging lower for a third straight session. PBR stock is well above the 50-day moving average.
On the back of a 22.7% rally last week, PBR stock has formed the right side of a cup base with a 14.98 buy point. With this week’s decline, the oil stock is working on a possible handle, which would reduce the buy point to 14.54.
A decent handle, which won’t be valid until Friday’s close, would be a positive technical sign. It would also allow the 50-day line for PBR stock to catch up a bit.
The relative strength line for PBR stock soared in the first half of this year, according to MarketSmith chart analysis. It tumbled in June but is almost back near its May peak, though below all-time highs. A rising RS line is a sign of outperformance vs. the S&P 500.
The pattern includes a nearly 7% earnings gap-up July 29. It stretches back to late May and follows a successful breakout in December.
A 98 Relative Strength Rating means that Petrobras has outperformed 98% of all stocks in IBD’s database over the past year.
The integrated oil and gas industry group is acting well, ranked No. 31 out of 197 groups tracked by IBD. PBR stock is the No. 1 stock out of 22 stocks in that group.
Petrobras Earnings To Leap 74%
Petrobras earns a perfect IBD Composite Rating of 99, the highest in its group. The Comp rating combines key fundamental and technical metrics in a single easy-to-use score.
A 77 EPS Rating reflects its earnings comeback after declines. Petrobras shows zero quarters of earnings acceleration but one quarter of quickening sales.
On July 28, Petrobras smashed earnings estimates for the June quarter.
In addition, Petrobras generated free cash flow of $12.8 billion, increasing 61% from the prior quarter. Sales also grew 28% vs. Q1 “mainly due to the 12% increase in Brent prices, higher oil and oil products sales volumes, and higher oil products and natural gas prices,” the company said in its earnings release.
Petrobras tied the sales gain to the recovery in global demand for oil and oil products after the Covid-19 pandemic. In addition, the war in Ukraine negatively impacted supplies, it said.
In 2021, Petrobras earnings rebounded a massive 1,273% to $3.17 per share. They sank 81% the prior year. The pandemic crushed energy demand.
Analysts on Wall Street expect PBR earnings to grow 74% in all of 2022 as revenue grows 32%. They expect both earnings and sales to fall in 2023.
Out of 13 analysts on Wall Street, seven rate PBR stock a buy and six have a hold. No one has a sell, FactSet shows.
Their average $16.76 target price implies a further 21% upside for PBR stock after its post-earnings surge. Four analysts hiked their price targets on Petrobras after its July 28 earnings beat, and one cut.
Alongside Petrobras, Exxon Mobil and Chevron beat Q2 earnings views July 29, posting record profits.
Funds Pile Into Oil Stock Despite Challenges
The oil stock shows four quarters of rising fund ownership, according to the IBD Stock Checkup tool. As of June, 479 funds owned PBR stock, up 2% from March.
Funds holding Petrobras shares include the highly rated Fidelity Contrafund.
However, state-controlled PBR is subject to political whims. Brazil’s government, holding a majority stake and facing a tough reelection battle later this year, asked Petrobras in July to increase dividends, Reuters said.
So Petrobras will distribute at least twice as much as its biggest international rivals in Q2 dividends, boosting the government’s coffers.
It also will distribute about 60% more to shareholders than its $10.5 billion (54.33 billion reais) profit. Critics argue the huge payout will lead to underinvestment in the business.
Year to date, PBR stock has gained 50.6%. It yields 44.5%.
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