Petrobras (NYSE:PBR) received a bullish upgrade from Jefferies, which raised its rating on the Brazilian state-run oil giant from Hold to Buy, citing a more favorable risk-reward profile fueled by recent cost-cutting initiatives and a tighter approach to capital allocation.

The reassessment follows Petrobras’ Q1 2025 earnings, where management emphasized a strategic shift toward operational efficiency and spending restraint. CEO Magda Chambriard, during the company’s earnings call, underlined a renewed focus on simplifying projects and exercising financial discipline—while still advancing key initiatives in pre-salt oil fields and exploration activities.

Jefferies analysts highlighted that the company’s pledge to maintain a base dividend equal to 45% of free cash flow—supported by projects that break even at $45 per barrel—significantly cushions downside risk for investors.

Additionally, the firm pointed out that this more disciplined financial posture could allow Petrobras to trim its capital expenditure guidance for 2026–2030 by as much as 15%, potentially unlocking additional funds to sustain annual base dividend payouts in the range of $6 to $7 billion.

Looking ahead, Jefferies also sees production growth as a key catalyst. With two large-scale floating production storage and offloading (FPSO) units—Mero 4 and Buzios-6/P-78—scheduled to begin operations in the latter half of 2025, output is expected to rise. The newly deployed Tamandaré FPSO at the Buzios field is also contributing to near-term capacity increases.

“This production ramp-up strengthens the case for upside to Petrobras’ 2025 production growth goal of 5%,” wrote analysts led by Alejandro Anibal Demichelis.

Valuation played a crucial role in Jefferies’ decision as well. Petrobras shares have dropped 28% over the past year, underperforming industry peers. Analysts consider the current valuation levels to be low relative to historical averages, with room for the stock to re-rate as capital discipline eases investor concerns.

Jefferies reaffirmed its price targets at $15.30 for Petrobras’ common shares and $14.30 for preferred shares, indicating a potential upside of approximately 26% and 25%, respectively.

In Q1 2025, Petrobras posted adjusted recurring EBITDA of $10.7 billion – about 3% shy of Bloomberg’s consensus estimate. While upstream operations remained strong, weaker refining margins weighed on performance. However, free cash flow rose to $4.5 billion from $3.8 billion in the prior quarter, allowing the company to raise its ordinary dividend to $0.32 per ADR, up from $0.24 in Q4 2024.

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