After dropping 13 percent since early October, and 31 percent on the year, Petrobras (NYSE:PBR) has been out of favor with investors, enduring many downgrades as their debt load continues to be formidable with more on the horizon.
Petrobras has recently stated they may have to borrow another $60 billion over the next five years as well.
Believing they've bottomed out, UBS (NYSE:UBS) upgraded the Brazilian oil giant, citing the fall in price. That "warrants an upgrade" said UBS. They were raised from "Sell" to "Neutral."
The upcoming election in Brazil is important as it relates to Petrobras and potential investors. If the preferred candidate of president Luiz Inacio Lula da Silva, Dilma Rousseff, wins, it would be considered bad for the company as far as offering returns to investors, as there is sure to be much more spending by the government's mandate, which would push returns down.
On the other hand, a win by opposition leader Jose Serra, considered more centrist than Rousseff, would be better for the company and shareholders. Unfortunately, it seems the favorite is Rousseff at this time. The election will be held on October 31.
Petrobras is controlled by the Brazilian state, and so who is heading the country has an immediate impact on the oil giant.
Another challenge for them is the recent announcement they are going to fall short of its production goal of 2.1 million barrels of oil a day. Coupled with the large debt load, it doesn't look good for those who could get better returns elsewhere.
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