Petroleo Brasileiro SA (NYSE:PBR), more popularly known as Petrobras (NYSE:PBR), is continuing its remarkable run after delivering outstanding second-quarter earnings. Many are divided over the future of oil prices and, by extension, oil stocks. However, that is not the purpose of this essay and is a separate topic. I continue to be bullish on oil companies, and Petrobras (NYSE:PBR) is one of the “best in class” stocks.
Report of Earnings
The company exceeded its quarterly revenue forecast by $3.19 billion, representing a year-over-year increase of 65.4%. Moreover, Petrobras’ Ebitda climbed by a remarkable 34 % from quarter to quarter, indicating a general increase in corporate value.
Due to its ambitious capital expenditures, Petrobras (NYSE:PBR) could generate considerable financial returns shortly. The 74% increase in CapEx compared to the previous quarter was primarily attributable to signing fees associated with the Sepia and Atapu fields, indicating that future output may increase.
Lastly, the firm anticipates that its refinery operations will stay stable at 86% capacity utilization, this supports Petrobras’ vertically integrated business model, which has been essential to the company’s achievement of economies of scale with a gross profit margin of 50.89%
Valuation and Dividends
In general, a substantial portion of Petrobras’ valuation will depend on oil price, as its inventory and proven reserves play a significant role. However, commodity prices would have to decline significantly before Petrobras(NYSE:PBR) could be considered overvalued. According to the predicted free cash flow valuation approach, the price goal for Petrobras (NYSE:PBR) could be $34.28, which, if priced by the market, would more than quadruple investors’ money from here.
After a great quarter, Petrobras(NYSE:PBR) stated that it would shower its investors with a record dividend of 6.732 Brazilian reais ($1.30) per share, resulting in a forward dividend yield of around 4.29 %.
Key quantitative indices indicate that Petrobras (NYSE:PBR) has a strong potential for total return. Oil and gas prices on the market will undoubtedly fluctuate. As a result, investors must consider systemic activity.
However, the asset can be deemed “best in class” if viewed solely as an energy play. The market domination of Petrobras (NYSE:PBR) must be taken into account. As a highly dominating participant in the Latin American energy business, Petrobras (NYSE:PBR) stock will likely avoid cyclical headwinds, resulting in more sustainable returns for its shareholders.
Featured Image: Megapixl @Mohammedsoliman4