Petroleo Brasileiro (NYSE:PBR) is one of the largest oil companies by market cap in the world. The company, based in Brazil, has struggled more than most oil companies over the past year. However, that has created an opportunity in the stock as both trailing valuation metrics and analysts suggest that the stock is undervalued.
PBR has great exposure to the emerging markets that should continue to drive the company's earnings more so than its large competitors who are more exposed to the developed world. Below is a closer look at the valuations and the chart.
Valuation: Petroleo Brasileiro's trailing 5 year valuation metrics suggest that the stock is undervalued as two out of the three valuations are below their respective 5 year averages and one is just above. Petroleo Brasileiro's current P/B ratio is 1 and it has averaged 1.9 over the past 5 years with a high of 4.6 and low of 0.6. Petroleo Brasileiro's current P/S ratio is 1.4 and it has averaged 1.3 over the past 5 years with a high of 2.9 and low of 0.6. Petroleo Brasileiro's current P/E ratio is 9.6 and it has averaged 11.2 over the past 5 years with a high of 19.2 and low of 5.7.
Price Target: The consensus price target for the analysts who follow Petroleo Brasileiro is $38. That is upside of 34% from today's stock price of $28.32 and suggests that the stock is undervalued at these levels. This also suggests that the stock has significant upside and is an attractive opportunity at these levels.
Forward Valuation: Petroleo Brasileiro is currently trading at about $28 a share with analysts expecting EPS of $3.11 next year, an earnings increase of -5% y/y, for a forward P/E ratio of 9.1. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Petro China (NYSE:PTR) is currently trading at about $141 a share with analysts expecting EPS of $14.56 next year, an earnings increase of 27% y/y, for a forward P/E ratio of 9.7.
Total (NYSE:TOT) is currently trading at about $55 a share with analysts expecting EPS of $7.08 next year, an earnings increase of 1% y/y, for a forward P/E ratio of 7.7. China Petroleum & Chemical (NYSE:SNP) is currently trading at about $111 a share with analysts expecting EPS of $11.9 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 9.4. The mean forward P/E of Petroleo Brasileiro's competitors is 8.9 which suggests that Petroleo Brasileiro is fairly valued relative to its publically traded competitors.
Earnings Estimates: Petroleo Brasileiro has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between -22 cents and 20 cents from consensus estimates or about -26.8% to 28.6% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: Petroleo Brasileiro is down 25.5% over the past year, underperforming the S&P 500, which is up 4.7%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $29.10 and below its 200 day moving average, which sits at $28.73.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.