Oil company Petroleo Brasileiro S.A. (NYSE: PBR), commonly referred to as Petrobras, reported its best-ever quarterly profit in two years. The company reported a swing to profit in the fiscal 2017 first-quarter, compared to a net loss in the same period last year. Furthermore, Petrobras’ net income also exceeded analysts’ estimates. Following the results, the stock went up to a high of $10.57. However, it was unable to consolidate. Yesterday, the stock closed at $8.95 on the NYSE. We expect the share price to remain in a bearish orbit due to the reasons mentioned below.
The Brazilian state-run oil company reported a 3% decline in the fiscal 2017 first-quarter net revenues to 68.37 billion Reals ($17.99 billion), from 70.34 billion Reals ($21.74 billion) in the first-quarter of 2016.
The operating margin increased to 21% in the first quarter of 2017, from 12% last year. That resulted in a consolidated net income of 4.45 billion Reals ($1.42 billion), or 0.34 Reals per share ($0.11) in the first quarter of 2017, compared to a net loss of 1.25 billion Reals ($318 million), or 0.10 Reals per share ($0.02) in the year-ago period. The net income in the March 2017 quarter was higher than analysts’ estimates of 3.773 billion Reals.
Adjusted EBITDA was 25.25 billion Reals in the quarter ended March 2017. That compares with 21.19 billion Reals in the prior year’s similar quarter.
Initiatives taken to increase production in some offshore fields, cost-cutting program, and sale of non-core assets enabled the company to post an increase in net income.
Cash flow from operations increased to $7.38 billion in Q1 2017, from $4.43 billion in Q1 2016. Strong cash flow enabled the company to decrease long-term debt to $115.12 billion at the end of 1Q17, from $118.37 billion in the corresponding quarter of 2016.
However, capital spending fell 26% to 11.54 billion Reals. Analysts had forecast only a 6% decline in the capital spending. The quarterly results were reasonably good. However, considering the weakness in the oil price, lack of investors’ trust, and money-losing investments, we anticipate the stock to remain range-bound with bearish bias.
The stock is on a downtrend, after failing to cross above the major resistance level of 9.80. The underlying weakness is also confirmed by the MACD indicator, which is moving below the zero line. Thus, we can expect the stock to move downwards.
To benefit from the analysis, we are planning to invest in a put option valid for around a week. We would also proceed with the investment only when the stock of Petrobras trades at around $9.0 in the NYSE.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
