Petroleo Brasileiro: This Undervalued Stock Deserves More Attention
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With Petroleo Brasileiro (NYSE: PBR) still way below pre-recession highs even though prices for oil have been steady, I decided to take a closer look into the company to see if it is an attractive opportunity for investors. Here are five points I looked at while researching PBR:
Valuation: PBR’s trailing 5 year valuation metrics suggest that the company is undervalued as they are all in the lower end of their ranges. PBR’s current P/S ratio is 0.8 and it has averaged 1.3 over the past 5 years with a high of 2.9 and a low of 0.6. PBR’s current P/B ratio is 0.8 and it has averaged 1.8 over the past 5 years with a high of 4.6 and a low of 0.7. PBR’s current P/E ratio is 16.3 and it has averaged 21.7 over the past 5 years with a high of 38.4 and a low of 11.4.
Price Target: The consensus price target for the analysts who follow PBR is $39. That is upside of about 39% from where the stock is currently. This suggests that PBR is undervalued at these levels.
Forward Valuation: PBR is currently trading at about $28 a share and analysts expect the company to report EPS of $3.58 next year for a forward P/E ratio of 7.8. The analysts have a wide range of EPS forecasts though as the forecasts range from as low as $2.81 to as high as $4.40. BP (NYSE: BP) is trading at about $44 a share and analysts forecast the company to report EPS of $6.55 next year for a forward P/E ratio of 6.7. ExxonMobil (NYSE: XOM) is trading at about $84 a share and analysts forecast XOM to report EPS of $8.40 next year for a forward P/E of 10.0. PBR’s valuation is right in the middle of the three oil giants’ ratios suggesting that the company is fairly valued.
Debt: With the economy the way it is, it makes sense to take a closer look at the debt load to assess the financial risk. At the end of last quarter, PBR had debt of $81.5 billion and a trailing EBITDA of $36.2 billion for a debt/EBITDA ratio of 2.3. XOM had debt of $16.7 billion and a trailing EBITDA of $69.8 billion for a debt/EBITDA ratio of 0.2. BP had debt of $45.3 billion and a trailing EBITDA of $40.0 billion for a debt/EBITDA ratio of 1.13. PBR is the most levered out of the three companies and therefore has the most financial risk.
Price Action: The stock struggled for most of last year, falling 50% to below $21 a share. However, in October things turned around and the stock has found some support from investors. After breaching the $21 level, the stock rallied aggressively to nearly $29 a share and has traded between $24 and $29 the past three months. It is now approaching its 6 month high of $29 a share. The stock just crossed its 50 day moving average, which sits at $26.36. PBR’s 200 day moving average is at $29.95. The $29 level seems like it will serve as a good challenge for the stock, but if it is able to overcome that, $32 looks like the next key resistance level. On the downside, the $24 level followed by the 52 week low of $21 will serve as support.
Conclusion: PBR looks like it has potential here and great exposure to the emerging markets, which are expected to provide strong growth whenever the world economy gets healthier. The valuation metrics are there to support a higher stock price so PBR may be worth a shot here.
The Motley Fool has no positions in the stocks mentioned above. Vatalyst has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.