It’s time to buy Petrobras on the strength of its dividend potential, Morgan Stanley said Wednesday. Analyst Bruno Montanari upgraded the Brazilian energy giant to overweight from equal weight and hiked his price target. “PBR has been a strong performer YTD, but we see further room for capital appreciation,” Montanari wrote. “And the potential total return — 51% after a ~16% dividend yield — looks compelling enough to us to justify a more positive stance on the stock in 2023.” PBR YTD mountain Petrobras shares in 2023 The U.S.-listed shares of Petrobras are higher by 18% this year, outpacing Brent crude futures, which are down by 10% over the same time period. Nevertheless, the analyst’s $16.50 price target, hiked from $12.50, suggests the stock has 30% upside from Tuesday’s closing price of $12.65. That bullish outlook is driven by “far less disruptive” policy changes from the government than the analyst was previously expecting, as well as lower oil prices that only bolstered the case for Petrobras. Montanari expects the firm will generate generous dividends for investors going forward. “Our new estimates, using lower oil prices form the current forward curve, have PBR still generating [free cash flow] of $23B in 2023, a 30% yield,” Montanari wrote. “And our new dividend expectation, at 40% of FCF (before interest), generates a compelling 16% yield.” During Wednesday premarket trading, Petrobras shares gained 1.9%. —CNBC’s Michael Bloom contributed to this report.
