Petrobras (PBR) Gears Up For Q1 Earnings: What's In Store?

Petróleo Brasileiro S.A. or Petrobras (NYSE:PBR) is set to release first-quarter 2018 results on May 8.

In the preceding three-month period, the Rio de Janeiro-headquartered integrated player reported a positive earnings surprise of 11.11%, courtesy of higher oil prices. Petrobras has a mixed earnings surprise history. It has topped estimates in two of the last four quarters, the average positive earnings surprise being 24.7%.

Which Way Are Estimates Treading?

Let’s take a look at the estimate revisions in order to get a clear picture of what analysts expect from the earnings release.

The Zacks Consensus Estimate for first-quarter earnings has been revised downward over the last 30 days. It reflects a decline of almost 18.2% from the year-ago quarter.

However, analysts polled by Zacks expect revenues of $25.8 billion for the quarter, up 18.5% from the prior-year quarter.

Factors at Play

Petrobras is the largest publicly-traded Latin American oil company, which dominates Brazil’s oil and gas sector. The company produces most of Brazil’s crude oil and natural gas and accounts for almost the entire refining capacity of the country.

The favorable crude pricing environment during first-quarter 2018 has been favorable for the company’s upstream business. The average West Texas Intermediate (WTI) crude price for the month of January, February and March was $63.70, $62.23, and $62.73 per barrel, respectively — per the U.S. Energy Information Administration. Notably, the average monthly price of the commodity never touched $60 in the 2015-2017 period, courtesy of the extension of OPEC’s production cut deal through 2018-end.

Last year, Petrobras’ capital investments and expenditures totaled $13,639 million, lower than $14,085 million incurred in 2016. This allowed the world's most indebted oil company to trim its massive debt load. At the end of 2017, the company had net debt of $84,871 million, reflecting a significant decline from $96,381 million as of Dec 31, 2016.

However, Petrobras still has a net debt of roughly $85 billion, with a net debt-to-capitalization ratio of approximately 51%. As such, leverage is a key area of concern for the firm.

Earnings Whispers

Our proven model does not show a beat for Petrobras this earnings season. That is because 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. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 18 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Petrobras carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the negative ESP makes surprise prediction difficult.

Conversely, 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 to Consider

Here are some firms that you may want to consider on the basis of our model. These have the right combination of elements to beat earnings this quarter.

Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) has an Earnings ESP of +6.28% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abraxas Petroleum Corporation (NASDAQ:AXAS) has an Earnings ESP of +14.29% and a Zacks Rank #3.

Enbridge Inc (NYSE:ENB) has an Earnings ESP of +5.88% and a Zacks Rank #3.

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