Brazilian oil and natural gas company Petroleo Brasileiro (
PBR
,
quote
) (a.k.a. Petrobras) has rebounded recently, up 8.12% for the week
and 17.35% for the month. Over the same time periods, the main
exchange traded fund for oil, United States Oil (
USO
,
quote
), has risen by 2.29% and 8.23%, respectively.
[caption id="attachment_67604" align="alignright" width="300"
caption="Former Brazilian president Lula poses with workers at a
Petrobras plant"]
[/caption]
Over the past year, Petroleo Brasileiro is down 21.30%. The
global economic slowdown, particularly in China, has lowered the
price of oi; weakness in the Brazilian economy has also adversely
affected the company. Dealing with the
Brazilian government has taken its toll
on Petrobras shares.
However, as one analyst noted about the long term upside for
Petroleo Brasileiro:
"Brazil has huge foreign reserves relative to its GDP and a
relatively high prime rate right now. So, its government still has
high power in untapped monetary and fiscal measures to
stimulate its economy
. In addition, since
Rio Olympics
is still four years to go and a large amount of construction
projects has still to be done, Brazil's economy and oil consumption
will be further spurred by Olympics games over the next three to
four years. Don't forget how much Shanghai index rose over the four
year period before the Beijing Olympics. The stock has dropped 73%
from its all-time high, but has a great potential return."
While investors are waiting for this projected "great potential
return," the superior dividend yield of Petroleo Brasileiro makes
it that much easier for long-term investors to patiently wait for a
recovery. The average dividend for a member of the Standard &
Poor's 500 Index has a dividend yield of around 2% with a historic
payout ratio of around 50%. Petroleo Brasileiro has a dividend
yield of 4.53% with a low payout ratio of 36.84%. That offers ample
cash flow for Petrobras to increase its dividend or initiate a
share repurchase program in order to lift the stock price.
Although a nice gain has been posted by Petrobras, much of that
can be attributed to tensions with Iran. However, the current price
for Petrobras
is well below its high for the year
. There is deep value in shares of Petroleo Brasileiro. The
forward-price-to-earnings ratio is 7.5 and both the price-to-sales
ratio and price-to-book ratio are under 1.
At around $21.98 a share, given the mean analyst target price
for Petroleo Brasileiro over the next year of market action is
$32.58, there remains substantial upside in this Brazilian oil
producer.
