The ADR’s of Petroleo Brasileiro S.A. (NYSE: PBR), or Petrobras, have gotten a boost today. This is not just in conjunction with the rally seen in other oil and gas stocks from earnings. Morgan Stanley has initiated coverage of the Brazilian oil giant with an "overweight" rating and a $38.00 price target.
Morgan Stanley is still cautious onthe stock in the near-term because of the current market malaise, theselling and added risks in emerging market BRIC economies, and becauseof the risks associated with lower oil prices combined with higheroperating costs and higher operating leverage. All of this is a riskto its earnings.
But on a long-term basis, Morgan Stanley is positive that Petrobras’massive untapped reserves can be monetized in an environment ofhigher oil prices. It also believes that the firm is not as leveragedas some other key emerging market oil giants and that the company willcontinue to operate with high profits.
Shares are up over 5% at $23.75, but are well under the intra-day highs. Its 52-week trading range is $19.54 to $77.61.
Jon C. Ogg
October 29, 2008