Analysts Turn Bullish on Petrobras as New Policies Become Clearer

Analysts at major global banks have been upgrading their share price expectations for Brazil's state-run oil firm Petrobras PETR4.SA as they evaluate that the new leftist government's policies are not as unfriendly to investors as some had feared.

Shares in the company have climbed more than 50% so far this year to historic highs, including a jump of 3.3% to 31.59 reais on Wednesday, but sell-side analysts still say the rally has room to go, placing price targets as high as 41 reais per share.

Santander and Goldman Sachs were the latest to upgrade their recommendations on the oil company to "Buy". They announced the change late on Tuesday, citing an attractive valuation and limited impacts from recent changes to key company policies.

That followed similar calls earlier this month by Morgan Stanley and JPMorgan, which upgraded Petrobras to "Overweight" mentioning less disruptive policy changes than initially expected and lower risk perceptions, respectively.

Goldman Sachs said in a note to clients that smaller tail risks and an attractive valuation, even after the recent rally, supported its decision, noting that policies on dividends, fuel prices and capital allocation were becoming clearer.

Last month, Petrobras ditched a market-based policy for pricing its gasoline and diesel in Brazil in favor of greater flexibility to smooth price swings, but executives pledged not to sell fuel below profitable levels.

"It is not straightforward but points to Petrobras still following international price trends," Goldman said.

The state-run giant has also revised part of its strategic plan in a bid to increase investments in low-carbon initiatives.

The move, however, did not surprise analysts, as President Luiz Inacio Lula da Silva's government had previously said it would seek to drive a transition to renewables while keeping expanded oil production on track.

Analysts now await an announcement on the firm's dividend policy by July, but they do not foresee a major shift.

"We believe the company's financial vigor and the government's fiscal needs make the case for limited changes," said Santander analysts, who raised their rating to "Outperform".

(Reuters - Reporting by Gabriel Araujo; Editing by Brad Haynes, Emma Rumney and Sharon Singleton)