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Petrobras (PBR) to Post Q1 Earnings: Disappointment in Store?

Zacks Equity Research

Petrobras PBR is set to release first-quarter 2019 results on May 7, after the closing bell. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at a profit of 25 cents on revenues of $22,090 million.

In the preceding three-month period, the Rio de Janeiro-headquartered integrated player delivered a positive earnings surprise of 6.67%, courtesy of higher oil prices. Coming to earnings surprise history, the company delivered average positive surprise of 22.83%.

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

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

Investors are keeping their fingers crossed and hoping that the Brazilian energy giant will beat earnings estimates this time too. However, our model does not predict an earnings beat for Petrobras in the first quarter of 2019.

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts expect from the company this earnings season.

The Zacks Consensus Estimate for first-quarter earnings has been revised downward by 26 cents over the past 60 days. The consensus mark indicates a 31.2% decline from the year-ago quarter. Revenue estimates for the to-be-reported quarter also compare unfavorably with the year-ago reported revenues of $22,958 million.

Let’s take a look at the factors that are likely to impact Petrobras’ performance in the quarter to be reported.

Factors at Play

Petrobras has been bearing the brunt of declining production levels since the past several quarters and the trend is likely to continue this earnings season as well. While the company’s divestment program has improved its financials to some extent, it has affected volume growth of the firm, which may limit overall upstream earnings.

Indeed, Petrobras is undertaking initiatives to trim its leverage metrics, yet the company’s high debt burden of around $70 billion and associated interest payment obligations will weigh on the firm’s upcoming results. One can’t deny the fact that Petrobras’ involvement in the Operation Carwash scandal, keeping it two levels away from the investment grade ratings, which might be an overhang for the to-be-reported quarter as well.  

Petrobras is likely to incur one-time charges of $326 million in the upcoming quarter on account of an ongoing rig dispute with Sete Brasil Participacoes SA. The one-time charges and high capital spending by the firm are likely to dent earnings and cash flow of the company in the quarter to be reported.

Earnings Whispers

Our proven model does not show that Petrobras is likely to beat earnings estimates in the to-be-reported quarter. This is because it does not have the right combination of two key ingredients. 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.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%.

Zacks Rank: Petrobras currently holds a Zacks Rank #5 (Strong Sell). Please note that 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.

Stocks Worth a Watch

While earnings beat seems uncertain for Petrobras, here are some companies from the energy sector, which, according to our model, have the right combination of elements to post an earnings beat in the to-be-reported quarter:

Cimarex Energy Co. XEC has an Earnings ESP of +1.95% and a Zacks Rank #2. The company is anticipated to report first-quarter earnings on May 8.

YPF Sociedad Anonima YPF has an Earnings ESP of +29.00% and holds a Zacks Rank #2. The company is anticipated to release first-quarter earnings on May 9. You can see the complete list of today’s Zacks #1 Rank stocks here.

NuStar Energy L.P. NS has an Earnings ESP of +25.39% and a Zacks Rank #3. The firm is expected to announce first-quarter earnings on May 9.

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