Petrobras Crashes As Rousseff Wins Reelection In Brazil
Zacks Investment Research | Oct 29, 2014 01:18AM ET
Petroleo Brasileiro SA (NYSE:PBR)), the Brazilian state-run energy giant, saw its ADRs plunge more than 13% on leftist Dilma Rousseff’s re-election as the president of the country. Rousseff narrowly won the second round of the presidential runoff against opposition leader Aecio Neves by securing 51.6% of the votes on Sunday.
During Rousseff’s reign, Petrobras was forced to bear losses by selling gasoline − the end product derived from refining oil – to Brazilian customers at much lower government regulated prices after buying crude at higher market prices.
Moreover, owing to excessive intervention by Rousseff in the Brazilian economy, the country’s inflation skyrocketed and productivity slumped. Consequently, the economy of Brazil grew at the slowest pace in last 20 years.
The business community seems to have lost confidence in Petrobras (NYSE:PBR) after Rousseff was re-elected and is skeptical regarding the company's future profitability. This is reflected in the plummeting ADR price of the largest integrated energy firm of Brazil.
On the contrary, Petrobras’ ADRs surged significantly after the result of the first round of voting in the Brazilian presidential elections was out on Oct 5. Investors were then pleased with the significant support that Aecio Neves got as they were pinning their hopes on the opposition to help Brazil to come out of its present economic downturn.
Petrobras currently carries a Zacks Rank #3 (Hold) implying that the company will perform in line with the broader U.S. equity market in the next one to three months.
Meanwhile, one can look at better-ranked players in the energy sector like Magellan Midstream Partners LP (NYSE:MMP), Cobalt International Energy Inc. (NYSE:CIE) and Delek Logistics Partners LP (NYSE:DKL)). All the stocks sport a Zacks Rank #1 (Strong Buy).
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