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Petrobras (PBR) Hit by Dividend Fiasco: All You Need to Know

In a dramatic shakeup, the Brazilian government ousted Petroleo Brasileiro S.A., or Petrobras PBR CEO Jean Paul Prates last week. The dismissal, prompted by disagreements over dividend policies, underscores ongoing tensions between the state-controlled oil giant and President Luiz Inácio Lula da Silva’s administration. This development marks the fifth change in Petrobras' leadership within three years, highlighting persistent political interf

What Happened?

The ousting of Prates, who served less than 18 months, reflects President Lula’s push to reduce investor payouts and boost investments in areas such as renewable energy and refineries. Prates’ tenure was marred by disagreements with government-appointed board members over the decision to pay extraordinary dividends to shareholders. Critics argue that the government's influence threatens to prioritize political goals over shareholder interests, echoing concerns from Petrobras' past scandals and mismanagement.

Magda Chambriard, a former head of the Brazilian oil and gas regulator ANP, has been appointed as Prates' successor. Chambriard, who aligns closely with Lula’s views, advocates lower dividends and increased capital spending on domestic projects, such as refining capacity and shipbuilding.

Market Reaction

Following the announcement, Petrobras' shares slipped by 6%, making it the biggest loser on Brazil’s benchmark stock index on Wednesday. The company’s American Depositary Receipts (ADRs) in New York also dropped 6% in after-hours trading. Analysts expressed concerns over the abrupt leadership change, which they fear signals increased governmental intervention in the company’s operations. The change is also perceived to increase uncertainties surrounding PBR’s investment strategy, particularly regarding capital allocation.

Finncial Performance

Amid the leadership turmoil, Petrobras recently reported its first-quarter results, which missed the Zacks Consensus Estimate. The underperformance can be blamed on rising pre-salt lifting costs that resulted in weak upstream profitability, plus higher refining outlay. This was partly offset by strong production.

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Recurring net income, which strips one-time items, came in at $4,816 million compared with $7,392 million a year earlier. Petrobras’ adjusted EBITDA fell to $12,127 million from $13,956 million a year ago.

Final Words

Petrobras' dividend strategy has been a contentious issue. While Lula’s administration favors reinvesting profits into national projects to stimulate economic growth, this approach conflicts with the preferences of international investors who seek higher returns.

The market’s reaction to the leadership change has been negative, reflecting fears of increased political intervention and its potential impact on the company's financial stability and strategic direction. With the appointment of Magda Chambriard, Petrobras is likely to see a shift toward policies that prioritize national economic interests over shareholder returns, further complicating its investment landscape.

3 Energy Stocks to Buy

Petrobras carries a Zacks Rank #3 (Hold) at present. Meanwhile, investors interested in the Oil/Energy space could benefit from accumulating stocks like SM Energy Company SM, Marathon Petroleum MPC and ProPetro Holding PUMP. SM Energy and Marathon Petroleum currently sport a Zacks Rank #1 (Strong Buy) each, while ProPetro carries a  Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

SM Energy Company: SM beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. SM Energy has a trailing four-quarter earnings surprise of 13.8%, on average.

SM is valued at around $5.6 billion. SM Energy has seen its shares increase 73.9% in a year.

Marathon Petroleum: Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved up 35.7%.

Marathon Petroleum is valued at around $63.3 billion. MPC has seen its stock rise 62.4% in a year.

ProPetro Holding: Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved up 36.7%.

ProPetro Holding is valued at around $1 billion. PUMP has seen its stock rise 27.6% in a year.

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Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report

SM Energy Company (SM) : Free Stock Analysis Report

Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report

ProPetro Holding Corp. (PUMP) : Free Stock Analysis Report

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