Following PetroChina Co. Ltd.'s (PTR) dismal third quarter showing, we are downgrading the Chinese energy giant to Underperform from Neutral. The Beijing-based integrated outfit recently posted weak quarterly results on the back of a challenging operating environment and persistent refining losses.
We also remain concerned by PetroChina's oil production growth prospects, considering its heavy exposure to significantly mature-producing areas. Other near-term headwinds include high-priced gas imports amid low domestic gas sale prices, policy uncertainty and an ambitious investment program.
Considering these factors, we see PetroChina as a risky bet that investors should exit. These factors are reflected in our downgrade of PetroChina ADRs to Underperform from Neutral. Our $123 price objective reflects a multiple of 5.5X the trailing twelve-month cash flow.
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