Petrobras (PBR) sinks 9% on Lula winning presidency in Brazil

Petrobras (PBR) stock has sold off as much as 9% in Monday's premarket after Luiz Inácio Lula da Silva was named the winner of the Brazilian presidential election late Sunday. Shares of the state-controlled oil company were down to $12.20 early on but have made up some ground to -6% in final hour of the premarket trade. The American Depository Receipt (ADR) closed at $13.45 on Friday.

Petrobras stock news

Socialist "Lula", who already served two terms as president in the 2003 to 2010 period, appears to have won with just under 51% of the vote. Lula was imprisoned for a time during the past decade after getting caught up in a scandal involving kickbacks for dozens of politicians, much of which came from Petrobras. Lula also ran during this campaign on using profits from Petrobras to fund his welfare proposals, a policy that would have obvious effects on the oil giant's performance over the next four years, especially its expensive capex program for deep sea drilling. 

Defeated president Jair Bolsanaro had instead proposed fully privatising Petrobras, a move that was of course much more welcomed by the market. Critics of Lula have also stated that regulatory changes made by his government led to a slowdown in production gains and argue that without these changes Petrobras would be producing at twice its current rate. 

A huge reason that value investors have long been focused on PBR stock is its hefty dividend. At $6.92 over the past twelve months, the yield is slightly above 50%. With a 2.8x P/E ratio, PBR stock will likely remain an attraction for bargain hunters. After all, the recent fall in oil prices mixed with current worries over a Lula administration, the stock looks seriously undervalued. Of course, the volatile government ownership, uncertainty over long-term reserves and expensive drilling costs have already been holding back the value for years. Shares have been on a general decline since 2009.

Petrobras stock forecast

Based on the general sentiment, interested buyers should wait to buy until the price action descends to at least $12. That bottom trend line has worked consistently since the March 2020 covid low. The 50-week moving average looks poised to overtake its 20-week counterpart, which is of course a bearish sign that tends to lead to further deterioration in the share price. On the upside, resistance appears tough in the region between $16 and $16.30. That makes it more likely that PBR bounces around for awhile between $12 and $16. There does not seem to be much upside on this puppy. The bull case is simply the dividend – whether you believe it will stay this high for a lot longer. 

PBR weekly chart