When Brazil's oil giant Petrobras (PBR) -- one of our "Stressed Out" companies with high debt -- reports results today after the market close, analysts will have to look beyond the numbers to gauge the company's future. And while it looks brighter than it did a quarter ago, not all clouds have dissipated.
Petrobras, which the Brazilian government owns 50% of, is at the center of a corruption scandal that has brought down the six-year rule of President Dilma Rousseff. (You can see more details about investor expectations for the company's earnings in this article published on Wednesday by TheStreet.com)
Just like the questioning of former President Lula da Silva back in March marked a turnaround for Petrobras, Rousseff's impeachment -- voted by the Brazilian Senate in the early hours of Thursday after all-night deliberations -- could boost the oil giant's chances of breaking free from political troubles, at least for a while.
Both Lula and Rousseff have been accused of receiving favors from various companies in exchange for contracts with Petrobras, accusations they have denied. Rousseff has not been impeached for these accusations, but on charges of having used fiscal maneuvering to disguise a deficit in the public accounts.
However, it's unlikely that any politician would dare to interfere in the way Petrobras is run after such high-profile allegations. So from that point of view, today's impeachment decision is positive. The company has a far better chance now to be run according to pure business principles, rather than political ones.
Brazilian equity markets are taking news of the president's impeachment rather well. It's true that stocks have been rising since mid-January due to rising commodity prices. But even though commodities fell recently, the benchmark Bovespa index gained 4% Tuesday as the president's impeachment drew near. That's because investors hope that Rousseff's impeachment will open the way for changes that will be beneficial to stocks in general.
"A new political equilibrium could bring a strong economics team and a big confidence shock, impacting investments and consumption [and] leading to a rebound in activity," Ioannis Angelakis, Credit Derivatives Strategist at Bank of America Merrill Lynch, wrote in recent research.
"Should inflation expectations keep declining, the central bank will be able to lower rates and accelerate the start of the easing cycle," Angelakis added. "This could stimulate banks to restart lending, which can bring more credit to the economy."
However, not everyone is that enthusiastic. David Rees, an analyst with London-based Capital Economics, warned that "investors may have got ahead of themselves to some degree."
He noted that while the administration of Vice President Michel Temer, who will serve as caretaker president during Rousseff's trial, "would undoubtedly be more market-friendly, we doubt that any leader would have the necessary clout at this juncture to push through the kind of structural reforms needed to lift the economy out of its current slump."
News of Rousseff's impeachment might boost Petrobras' stock for the short term. But longer term, the company needs impeccable management and substantial cuts in its debt to dig itself out of its current hole. And while oil prices have risen from their lows, they're unlikely to reach previous levels -- making Petrobras management's task even harder.
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