Pity Petrobras (NYSE: PBR) (NYSE: PBR.A) investors — they can’t seem to catch a break. Shares of the Brazilian oil giant — officially known as Petroleo Brasileiro — have fallen steadily in the four days leading up to and after the company’s poor first-quarter 2024 earnings report. This now includes a 7.2% decline through 10:45 a.m. ET today.
You can blame this latest decline on the President of Brazil himself.
Petrobras had only bad news to report on Monday. Q1 sales declined 15% to $23.5 billion — a poor performance, given that Q1 2024 world oil prices were similar to Q1 2023. Adding insult to injury, Petrobras’ profits declined twice as much, about 38% year over year, to $4.7 billion.
Unsurprisingly, given the declines, but nonetheless frustrating for investors, Reuters reported Monday that Petrobras will pay only $2.6 billion in dividends this quarter, well below the $3 billion payout Citigroup analysts predicted.
And today, the other shoe dropped.
As Reuters reports, the Brazilian government, which owns nearly 29% of Petrobras shares, according to S&P Global Market Intelligence data, will replace the company’s current CEO with a former government functionary who holds “views closer to those of” Brazilian President and Workers’ Party head Luiz Inacio Lula da Silva.
Admittedly, Petrobras’ miserable financial results Monday gave Lula the perfect pretext for making the switch. Institutional investors are nonetheless dismayed at the prospect of a socialist taking over Brazil’s premier oil company. They highlight Lula’s public calls for Petrobras to hire more workers, slash dividends, and reduce prices on the fuel it produces as all things calculated to worsen profits at the company and depress profits for investors in the process.
What’s an investor to do, then? At a valuation of less than 5 times earnings and paying an annual dividend in excess of 12% today, Petrobras stock may sound like a deep-value, no-brainer investment. Just because the stock looks cheap, though, doesn’t mean it can’t go down even more under worse management.
Petrobras stock is probably a sell.
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