Petrobras S.A. - ADR (PBR) - Bear of the Day

By Zacks | August 30, 2012 AAA

Following the dismal second quarter showing from Petrobras S.A. - ADR (PBR), we are downgrading the Brazilian state-run energy giant to Underperform from Neutral. The Rio de Janeiro-headquartered company recently posted its first quarterly loss in 13 years on the back of a weak domestic currency, rising costs and heavy fuel imports.

We also remain concerned by Petrobras huge investment requirements, the possibility of heightened state interference and caps on local fuel prices. Partially offsetting these negatives are the company's strong pipeline of development projects and impressive exploration successes, as well as exposure to Brazil's economic growth and huge pre-salt oil reserves.

These factors are reflected in our downgrade of Petrobras ADRs to Underperform from Neutral. Our $20 price objective reflects a 2012 P/E multiple of 8.0x.

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