The U.S.-listed shares of Petroleo Brasileiro S.A. or Petrobras (PBR - Analyst Report) slumped 9% on Wednesday after the Brazilian state-run energy giant had its credit rating cut two levels below investment grade to “junk” status a day before. The rating downgrade rocked the country’s equities and currency, with the benchmark iBovespa index losing 1.5% and the real tumbling 1.3%.    

Its difficulties in dealing with a widening federal investigation into kickback allegations, together with liquidity issues, were cited by ratings agency Moody’s Investors Service as part of its decision to drop the largest publicly-traded Latin American oil company’s long-term debt rating by two notches – from Baa3 to Ba2.

Moody's also attached to its rating a “negative” outlook, suggesting Petrobras faces potentially another downgrade in the short term. The move came less than a month after the last Moody's downgrade of the company’s debt. Incidentally, Fitch Ratings and Standard & Poor’s – the other two big rating agencies – rank Petrobras debt at their lowest levels of investment grade.

The leadership and company’s outlook in general is and has been quite poor for some time. This has pressured the integrated energy firm’s shares, which has lost around 45% of its value in the last 12 months.

Headquartered in Rio de Janeiro, Petrobras’ activities include: the exploration, exploitation and production of oil from reservoir wells, shale and other rocks, and in the refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.

Zacks Rank

Petrobras currently retains a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Better-ranked players in the energy space like VTTI Energy Partners L.P. (VTTI - Snapshot Report), Western Gas Equity Partners L.P. (WGP - Snapshot Report) and Valero Energy Partners L.P. (VLP - Snapshot Report) are worth consideration. All these stocks sport a Zacks Rank #1 (Strong Buy).