UPDATE: Citi Upgrades Petrobras (PBR) to Buy

(Updated - November 25, 2014 2:18 PM EST)

Citi upgraded Petrobras (NYSE: PBR) from Neutral to Buy with a modified price target of $13 (from $17). Analyst Pedro Medeiros noted attractive valuation and listed potential catalysts. He also said its tight balance sheet calls for "rationalization and governance improvement, not an equity dilution."

"We upgrade PBR to Buy as the stock fell 54% in the last 3-months and 23% year to date. We expect 2015-16 EPS growth to lead to a 23%+ recovery in the stock given current attractive multiples discount to global peers at 9x 2015 P/E and 7x 2016 with PBR offering downside protection in case oil prices weakens further and positive leverage in the case of a rebound," said Medeiros.

Medeiros said events that could trigger a stock recovery are, "(1) announcement of market-friendly Finance Minister, (2) the release of PBR 3Q14 audited financials, (3) the update of PBR five-year business plan should be the key trigger with a message of expenditures rationalization, and (4) the decision on the payment of recently acquired PSC contract from Brazil’s government."

"We also highlight NAV upside potential as company weathers through a tighter 2015-16 balance sheet. Corruption investigations should also lead to governance improvements," he said.

For an analyst ratings summary and ratings history on Petrobras click here. For more ratings news on Petrobras click here.

Shares of Petrobras closed at $10.50 yesterday.

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