Analysts provide insights on Breitburn Energy Partners LP (NASDAQ:BBEP) and Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR), following 1Q16 earnings from each. While one analyst drops Breitburn like a hot potato due to debt struggles, the other remains neutral in the face of Petrobas’ uncertain political, judicial, and economic climate.
Breitburn Energy Partners LP
UBS analyst Shneur Gershuni expressed his views on Breitburn energy partners following 1Q16 earnings last week. The company posted better than expected EBITDA of $131 million compared to the analyst’s estimates of $123 million for the quarter. The analyst explains, “Lower than expected costs and higher impact from hedges were key drivers of higher than expected 1Q EBITDA.”
Despite this earnings win, the analyst is more focused on liquidity issues the company faces. Like many oil companies, BBEP is suffering from high debt and falling earnings, which worry the analyst. The analyst “remains concerned with BBEP’s financial position” and states that on April 14, 2016, the company deferred $46.7 million dollars in interest payments on notes maturing between October 2020 and April 2022, which was originally due on April 15, 2016.
The company is currently “exploring strategic alternatives to improve the balance sheet” during its 30 day grace period of its post interest payment date “until an event of default occurs.” The analyst explained further, “BBEP noted that potential event of default due to ending of 30-day grace period, could have a material negative impact on its liquidity and financial condition” and will be watching closely for updates on this matter.
The analyst maintains a Sell rating on the company with a $0.10 price target.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Shneur Gershuni has a 49% success rate recommending stocks with a 5% average return per recommendation.
As of this writing, only one other analyst has rated the company in the last 3 months, giving a Hold rating without a price target.
Petroleo Brasileiro SA Petrobras (ADR)
Analyst Frank McGann of Merrill Lynch weighed in on Petrobas following the firm’s 1Q:16 earrings.
The analyst specifically highlighted the firm’s net income before extraordinary items of R$1.7 billion fell below his estimates of R$2.7 billion, attributing this to a higher tax rate and increased interest charges. The analyst blamed the earnings miss on weaker production volume and falling crude oil prices. While earnings missed expectations, the analyst notes that Q1 EBITDA grew 9% y/y, 11% above his own estimates, due to the gasoline/diesel price increase of October 1 and a decrease in lifting costs.
The analyst cites several potential factors that can turn the stock around in the next 12 months. Most notably, the analyst points to a recent announcement of negotiations to sell part of its TAG gas pipeline to Brookfield, which could generate $5 billion-$6 billion for the company. The analyst states, “If completed, we believe a sale could be a positive step to help Petrobras de-leverage.” The analyst also believes the possibility of an overall increase in oil prices and Brazilian economic conditions could bode well for the stock in the next year. However, McGann believes the bad outweighs the good in the near term, pointing to an uncertain economic and political climate and the “potential negative effects” of U.S class action lawsuits and investigations.
The analyst maintains a Neutral rating on the stock with a $7.50 price target.
According to TipRanks, out of the 5 analysts who have rated the stock in the past 3 months, 2 are bearish while 3 remain on the sidelines. The average 12-month price target for the stock is $4.53, marking a 34% downside from where shares last closed.