Is Petrobras a Buy At These Prices?

With shares of Petróleo Brasileiro (Petrobras) (NASDAQ:PBR) trading around $17, is PBR an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Petrobras operates as an integrated oil and gas company in Brazil and internationally. The company operates in several segments: exploration and production; refining, transportation, and marketing; gas and power; biofuel; distribution; and international. Energy operates the products that fuel global expansion. Petrobras is a major player in the energy industry that is well-positioned to provide the products that consumers and businesses require across the globe.

T = Technicals on the Stock Chart Are Mixed

Petrobras has been in a range this past quarter. The stock has been trading at highs slightly below its all time highs. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Petrobras is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

PBR

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Petrobras options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Petrobras Options

36.01%

0%

0%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Petrobras’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Petrobras look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

N/A

29.30%

-16.90%

-30.00%

Revenue Growth (Y-O-Y)

N/A

-98.21%

9.69%

-6.34%

Earnings Reaction

8.17%*

N/A

N/A

-8.26%

Petrobras has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feeelings with Petrobras’s recent earnings announcements.

* As of this writing

P = Poor Relative Performance Versus Peers and Sector

How has Petrobras stock done relative to its peers, BP (NYSE:BP), Royal Dutch Shell (NYSE:RDS), Chevron (NYSE:CVX), and sector?

Petrobras

BP

Royal Dutch Shell

Chevron

Sector

Year-to-Date Return

-11.80%

4.85%

1.88%

11.60%

2.63%

Petrobras has been a relative performance leader, year-to-date.

Conclusion

Petrobras participates in an area that is essential to many consumers, businesses, and overall global growth. The stock has been in a range this past quarter, but is currently trading at highs slightly below its all time highs. During the last four quarters, the stock has seen decreasing earnings and revenue figures, leaving investors with mixed feelings. Relative to its peers and sector, Petrobras has trailed in performance by a significant margin. STAY AWAY from Petrobras for now.

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