Petrobras Plummets Amid CEO Turmoil

The Brazilian government’s sudden decision to seek a change in state-controlled oil company Petroleo Brasileiro’s PBR CEO following the recent dispute over diesel prices has caused a high level of uncertainty.

The Petrobras Analyst: Frank McGann downgraded Petrobras from Buy to Underperform, while reducing the price target from $17 to $11.

The Petrobras Thesis: The uncertainty caused by the change of the company’s current CEO, Roberto Castello Branco, “could affect certain aspects of Petrobra's business in coming years and increase perceived risks, which could limit upside for the shares,” McGann said in the note.

Although the new CEO, General Joaquim Silva e Luna, has strong leadership skills, his experience in the oil and gas industry and in the management of public companies is limited, the analyst pointed out.

“Although it remains unclear what form these changes could take, these could affect pricing policy and asset sales. We also see a heightened risk of damage to investor confidence. Given that a second pricing crisis has led to a CEO change in less than three years, this is likely to reduce the perception of Petrobras's independence from the Federal Government,” he wrote.

PBR Price Action: Shares of Petrobras dropped 21% to $7.90 at the time of publication Monday.

Photo by Patrick-br/Wikimedia.