Investing.com -- Jefferies upgraded Petroleo Brasileiro Petrobras (NYSE:PBR) to Buy from Hold, citing improved risk-reward driven by cost-cutting efforts and capital discipline.

The move follows Petrobras’ first-quarter earnings, which showed a focus on tighter spending and strategic prioritization under current oil prices.

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At the results call, CEO Chambriard emphasized a shift toward cost-cutting, project simplification, and capital discipline, while maintaining core projects in pre-salt and exploration.

Jefferies noted that Petrobras’ commitment to a base dividend payout of 45% of free cash flow, with projects breaking even at $45 per barrel, improves downside protection.

The broker added that a more disciplined approach to capital allocation could lead to a 15% reduction in the company’s 2026-2030 capex plan, freeing up cash to sustain base dividends of $6-7 billion annually.

Jefferies sees upside from new production capacity, as two major floating production storage and offloading (FPSO) units—Mero 4 and Buzios-6/P-78—are expected to come online in the second half of 2025.

“This, along with the recently started-up Tamandare FPSO at the Buzios field, should enable PBR to continue to raise output near term, offering upside risk to the FY25 production growth target of +5%, in our view,” analysts led by Alejandro Anibal Demichelis said.

Jefferies also highlights Petrobras’ valuation as a major factor behind the upgrade. The stock has declined 28% over the last twelve months, materially underperforming peers.

“We see this as an undemanding valuation, relative to historical multiples, and see room for PBR to re-rate near term as the more discipline capital allocation push removes market concerns,” the analysts continued.

Jefferies maintained its price targets at $15.30 for common shares and $14.30 for preferred shares, implying upside of roughly 26% and 25%, respectively.

In the first quarter of 2025, Petrobras reported adjusted recurring EBITDA of $10.7 billion, around 3% below Bloomberg consensus. Strong upstream performance was partially offset by weaker refining margins.

Free cash flow improved to $4.5 billion from $3.8 billion in the previous quarter, enabling the company to raise its ordinary dividend to $0.32 per ADR, up from $0.24 in Q4 2024.

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