On Monday, HSBC made a bullish move on Petrobras shares (NYSE:PBR), upgrading the stock from Hold to Buy. The financial institution set a price target of $18.00 for the oil and gas company, indicating a positive outlook for its investment value.
The upgrade comes after a period of decline in Petrobras' stock price, which HSBC views as an opportunity for investors to acquire shares at a more attractive valuation. The firm's analysts predict over 20% upside potential for both ordinary (ON) and preferred (PN) shares of Petrobras, expressing a particular preference for the PN shares.
HSBC's price target is grounded in a discounted cash flow (DCF) analysis, which utilizes a 10% weighted average cost of capital (WACC) in USD terms. The analysis also factors in an assumption of $15 billion per annum in sustainable, long-term free cash flow (FCF) generation for Petrobras.
The stock valuation also incorporates a sum-of-the-parts (SOTP) review, which highlights an increased valuation for Petrobras' Upstream segment. This is somewhat counterbalanced by the company's higher pension and healthcare debt, as well as increased off-balance sheet liabilities.
Despite these adjustments, HSBC's estimates for Petrobras have increased by less than 5%, and the firm maintains its distribution estimates for the next two years, which imply dividend yields of 9-12% after the stock's recent devaluation.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.