Petroleo Brasileiro S.A. or Petrobras PBR declared that it might divest part of its Brazilian fuel distribution arm. The move reflects the integrated energy firm’s intention of strengthening the balance sheet by lowering its mounting debt.
The distribution unit − Petrobras Distribuidora SA − controls almost 38% of the retail and wholesale fuel – ethanol, biodiesel and natural gas − distribution market in Brazil. According to media sources, Petrobras Distribuidora, which posted 2014 net income of $481 million and has market capitalization of $4.57 billion, is the second-largest affiliate of Petrobras.
Investors should note that Petrobras will either sell the shares of its subsidiary in the Brazilian stock exchange or will find a strategic partner for the distribution unit.
We believe that the asset sale is the only way out for Petrobras as the company has been struggling to raise money from the market after being involved in price fixing and bribery cases.
Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
However, the company’s upstream operations continue to face the challenges of weak crude prices.
As a result, Petrobras currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, some better-ranked players in the energy sector are Pembina Pipeline Corporation PBA, EQT Midstream Partners LP EQM and Tallgrass Energy Partners LP TEP. All the stocks sport a Zacks Rank #1 (Strong Buy).
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