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What’s in the Offing for Petrobras (PBR) in Q3 Earnings?


Brazilian state-run energy giant Petróleo Brasileiro S.A. or Petrobras PBR is set to release third-quarter 2017 results after the closing bell on Nov 13.

In the preceding three-month period, the Rio de Janeiro-headquartered integrated player reported a negative earnings surprise of 46.67% amid a large tax outgo on account of an adjustment program and lower oil sales volume.

Petrobras has a good earnings surprise history. It has topped estimates in three of the last four quarters. The company posted average positive earnings surprise of 51.49% in the said period.

Petroleo Brasileiro S.A.- Petrobras Price, Consensus and EPS Surprise

Petroleo Brasileiro S.A.- Petrobras Price, Consensus and EPS Surprise | Petroleo Brasileiro S.A.- Petrobras Quote

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate for the current quarter earnings has been revised downward by 7 cents over the last seven days. However, the Zacks Consensus Estimate for 2017 earnings has remained unchanged at 68 cents over the last seven days.

Factors at Play

Prices of oil at the end of the third quarter were $51.67 per barrel, up about 10.5% sequentially amid tightening supplies, improving demand outlook and OPEC deal-extension talks. The upstream segment of the company is poised to benefit from recovering commodity prices.

Petrobras is focusing on entering into various strategic partnerships with foreign oil giants to drive exploration momentum and focus on developing its core base of pre-salt fields. In this regard, the company has inked deal with major players like TOTAL S.A. TOT, Royal Dutch Shell plc RDS.A and Statoil ASA STO.

Further, Petrobras’ successful cost-reduction initiatives and efficiency gains are expected to cushion results further. Petrobras has also slashed its capex budget for 2017-2021 by 25%, which will enable the company to lower its debt load. Moreover, the company’s aggressive divestment plans are also in sync with its strategy to reinstate investor’s faith in the stock and reduce the financial burden. During the quarter, the company inked several divestment deals to offload its non-core oil/ gas fields and fertilizer units.

However, Petrobras’ involvement in the multibillion-dollar money laundering and bribery case has deteriorated the company’s credit rating to certain extent. Further, leverage also remains a key area of concern for the firm as of now. Though the company has been making successful efforts to trim its massive debt loads, Petrobras still carries a net debt of almost $89.2 billion, with net debt-to-capitalization ratio of approximately 53%.

Earnings Whispers

Our proven model does not conclusively show that Petrobras will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate Estimate and Consensus Estimate are both pegged at 15 cents.

Zacks Rank: Petrobras currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Though a Zacks Rank #3 increases the predictive power of ESP, an ESP of 0.00% makes surprise prediction difficult.

Conversely, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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