Petrobras to Recover After Election, Bank of America Says

Petroleo Brasileiro SA, the world’s most volatile stock, is poised to recover after Brazil’s presidential election regardless of the vote result, according to Bank of America Corp.

The share price of Petrobras, as the state-controlled oil producer is known, discounts an “extremely negative environment” and should gain within a year, Bank of America analysts Frank McGann and Vicente Falanga Neto said in a report today. The rise could be greater if the winner of the Oct. 26 election suggests changes in Brazil’s energy policy, they said.

“There should still be important upside over the next six to 12 months from current depressed levels under either scenario,” the analysts, who have a buy rating on Petrobras, said in the note. “If election results suggest substantive energy policy change, we would expect a major stock recovery.”

Petrobras, the most indebted publicly listed oil company, dropped to the lowest in six months yesterday as President Dilma Rousseff gained in the polls, trimming expectations that a new government would reduce intervention in the producer. During Rouseff’s term, the company imported gasoline and sold it at a discount to curb accelerating inflation, generating more than $44 billion in operating losses for the company.

Shares in the Rio de Janeiro-based producer rose 5.8 percent to 16.30 reais at the close in Sao Paulo, reducing its decline during 2014 to 4.6 percent.

Petrobras stands to benefit in future months from an increase in oil production and improved financial results, the Bank of America analyst said in the research piece.

“Operational trends are likely to be more positive over the next 12 months, with a sharp rise in production and greater refining capacity likely to contribute to sharply lower imports,” they said. “Positive trends in cash generation should become more evident.”

Before it's here, it's on the Bloomberg Terminal.