Petroleo Brasileiro has the economies of scale investors like

Posted Jan 7th 2008 6:55PM by Joseph Lazzaro
Filed under: Brazil, Oil, Stocks to Buy

Readers of this space know that one argument forwarded here is that in the era of elevated energy prices oil/natural gas companies are likely to remain promising plays for the foreseeable future, baring the discovery of a cheap, widely-available, alternative energy source. And among oil/natural gas companies, Petroleo Brasileiro is worth a review.

Petroleo Brasileiro S.A. (ADR) (NYSE: PBR) is Brazil's largest industrial operation, with oil/gas production, refining and purchasing businesses, and oil/gas transport services.

Analysts like PBR's proven reserves of 15 billion barrels of oil equivalent, 12,900 wells, 16 refineries, 31,000 kilometers of pipeline, and 5,870 gasoline stations.

Analysts see 2008 production rising about 11-14%, including the start-up of 2 offshore oil rigs in fourth quarter (Q4) 2007. The Reuters F2007/F2008 EPS consensus estimates for PBR are $5.79 to $7.29.

The risks? Analysts have their eye on PBR's operating costs. Further, PBR's concentration in Brazil also means a downturn in that country's economy will hurt results.

The First Call mean rating for PBR is: Buy [11 firms]. Mean 2008 target: $110.00 [high: $140, low: $58].

Stock Analysis: Petroleo Brasileiro is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from PBR's shares. Sell/Stop Loss if you were to purchase shares in this company: $78.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: Brazil, emerging markets, integrated oil companies, natural gas, oil prices, oil sector, PBR, Petroleo Brasileiro