Why Is This Brazilian Oil Company A Buy?

We revise our future outlook to bullish on Petroleo Brasileiro Petrobras (PBR), based upon achieving 98 percent of nominal capacity, 31 percent increase in EBITDA, operational efficiencies and production start-up in the field of Campos basin and Gulf of Mexico. In our opinion, the company's expansion plans, its cost control philosophy and the expected increase in production activities, will enable the company to further improve its profitability position.

Petroleo Brasileiro Petrobras is trading at a forward price to earnings of 7.34x, which is at discount when compared to Exxon Mobil (XOM) and BP plc's (BP) forward P/E of 11.12x and 8x, respectively. It is trading at a price to sales of 1.07x, EV/Revenue of 1.58x and EV/EBITDA of 7.23x, at premium when compared to its competitors, as reflected in the table below. However, it is evident that its valuations have increased considerably compared to last month's valuations, as mentioned in our previous report. We believe its valuations will improve further, given that the company manages to sustain profits and effectively implements its growth plans. Find more about it.