by Aaron Levitt | December 2, 2013 12:27 pm
Add pricing issues to long-suffering Petrobras (PBR) shareholders’ pile of worries. Shares of PBR stock are falling hard today, currently down 10% at press time.
Why the mass selling of PBR stock? Because of transparency issues for Petrobras on the back of a recent announcement of an 8% price hike on diesel fuel and a 4% hike on gasoline.
Including today’s tumble, shares of Petrobras stock are sitting about 27% in the red year-to-date.
PBR stock investors aren’t likely worried as much about the price hike itself … but the fact that Petrobras may not be doing enough to raise profits and stop the bleeding with respect to its earnings.
PBR has suffered more than $12.8 billion in losses over the last two years as prices for what it sells have been outpaced by the costs associated with producing that oil and refined products. Petrobras reported a $3.8 billion loss in its downstream/refining segment during the quarter because of fuel price subsidies in place. PBR is very much controlled by the Brazilian government, which has pressured Petrobras to keep prices for its gasoline and diesel at lows in order to rein in inflation.
After last quarter’s continued earnings losses, Petrobras promised to unveil a new pricing strategy to help turn the tide and boost profitability at the firm. But what the market got from PBR wasn’t so great.
The issue for PBR stock shareholders is that the increase will apply only to the amount distributors pay before tax. Analysts estimate this will really only result in a 3% bump for PBR. Secondly, according to the official press release touting the Petrobras price increase, “the parameters of the pricing method will be kept strictly in-house for commercial reasons.”
The fact that no one really knows how or when Petrobras will calculate the price increases has truly spooked PBR stock shareholders. And several analysts have cited concerns about how to model the financial condition of PBR stock over the next coming quarters. That’s a huge concern.
Publicly traded companies thrive on trust. But PBR stock has become a “guessing game” for investors and analysts, with some now anticipating that the hikes won’t actually happen at all under the adopted program do to that statement.
President Dilma Rousseff was reluctant to sign off on the new fuel price policy this year and Brazil’s government could be just pulling the wool over investor’s eyes. 2014 is an election year in Brazil. And with PBR still very much a tool of the people, the price gains could be muted.
Given the issues, analysts at Credit Suisse (CS) moved PBR stock into the sell category. Other analysts followed suit with downgrades and sell recommendations on Petrobras stock. That prompted mass selling from investors, with shares of PBR stock trading at twice its average volume.
For investors, the recent lack of transparency at Petrobras highlights the issues with the state-owned companies that are used as populist tools. PBR continues to suffer, while other independent oil stocks flourish. Given that that some analysts have pegged the price increases as smoke and mirrors or not even enough, investors may want to avoid PBR stock in favor of other producers.
The issues at Petrobras continue to mount and that doesn’t make PBR stock a great portfolio play.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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