Investors in Petrobras could see a 60% total return on their holdings, according to Morgan Stanley. Analyst Bruno Montanari upgraded American depositary receipts of the Brazilian oil stock to overweight from equal weight and upped his 12-month price target by $2 to $20. That means the stock could climb 39% over Friday's closing level.
So, how does the analyst find that eye-popping 60% figure with an upside that's notably below that? Total return includes dividend income plus capital gains. Here's how Montanari adds it up: About 37% from share price appreciation. Roughly 16% from regular dividends.
Another 7% from extraordinary, or one-time, dividends. Montanari noted that Petrobras's investment case hinges on the dividends. While that's tied to capital allocation, he said Morgan Stanley's multi-scenario analysis uncovered the company's ability to release a total of about $7 billion in equal one-time payments in the fourth quarter of 2024 and 2025.
"Strong cash generation profile is PBR's key differentiation vs. peers on a global scale, providing more than enough funding for dividends in the coming years," the São Paulo-based analyst wrote to clients in a note on Sunday. That can help boost investor confidence with shares 16% below their 52-week high set last February.
Morgan Stanley noted that, through Friday, Petrobras was little changed over the past five months. The stock climbed as much as 4.9% in early trading Monday, but is still down almost 6% on the year.
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