Source: Thinkstock
The strong reaction to earnings has been tempered by a nearly equally strong reaction to Monday’s announcement that Petrobras, as the company is known, will issue another $1 billion in debt, pushing its debt burden to around $130 billion. Even for an oil company, that is a mountain of debt. Exxon, which has a market cap about six times that of Petrobras, carries about $33 billion in debt, and Chevron, more than three times the size of Petrobras, lists debt at around $34 billion.
Regardless of the size of the company’s debt, Petrobras has always been able to find willing lenders because yields on the debt are relatively strong, and the debt is backed by billions of barrels of oil. Still, debt service in 2015 is expected to cost the company about $21 billion and cash flow for the year is pegged at around $25 billion, according to a report at The Wall Street Journal. Add in planned 2015 capital expenditures of $29 billion, and a lot more borrowing appears likely.
Goldman Sachs downgraded the stock on Monday from Neutral to Sell and noted that the share price could be cut in half. Lower crude oil prices and lower growth forecast combine to make Goldman’s analysts wary of Petrobras’s leverage.
ALSO READ: 5 Big Oil Stocks to Buy for the Rest of 2015
Another thing to keep in mind is that first-quarter results from Petrobras were primarily due to a government-authorized increase in the amount the company is allowed to charge for its refined products and to the lower costs Petrobras had to pay for its imported crude oil. Lower costs and higher production also helped as did a strengthening of the country’s currency.
But can investors trust that the stars will always align so happily for Petrobras? Not for now at least. The company’s American depositary shares traded down about 4.5% Tuesday morning, at $9.26 in a 52-week range of $4.90 to $20.94.
Smart Investors Are Quietly Loading Up on These “Dividend Legends” (Sponsored)
If you want your portfolio to pay you cash like clockwork, it’s time to stop blindly following conventional wisdom like relying on Dividend Aristocrats. There’s a better option, and we want to show you. We’re offering a brand-new report on 2 stocks we believe offer the rare combination of a high dividend yield and significant stock appreciation upside. If you’re tired of feeling one step behind in this market, this free report is a must-read for you.
Click here to download your FREE copy of “2 Dividend Legends to Hold Forever” and start improving your portfolio today.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
