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• Morgan Stanley analyst sees upside in Petrobras stock to $20.
• Shares of the oil giant are particularly attractive for income investors.
• Petrobras share price is currently down about 12% versus YTD high.

Shares of Petrobras (PBR) are rallying on Monday after a Morgan Stanley analyst issued a bullish note in its favour.

Bruno Montanari recommends owning the Brazilian oil stock as it could climb to $20 over the next twelve months.

That translates to about a 39% upside from its previous close.

But the total return (dividend income + capital gains) coupled with Petrobras stock could hit 60% over the same period.

That’s because the multinational will likely return 16% in regular dividends and another 7.0% in special, one-time dividend payments, he added.

Petrobras share price is currently down some 12% versus its year-to-date high.

New management could be a boon for Petrobras’ stock
 

Morgan Stanley finds Petrobras stock more attractive than its global peers due to a cash generation profile that’s more than adequate to support dividend payments in the coming years.

Bruno Montanari is bullish also because he has confidence in the leadership of Magda Chambriard who assumed the top role at the oil giant in June. His research note reads:

“Message of the new CEO and CFO leads us to believe in strategy continuity, with the coexistence of responsible increase in investments and dividend distribution, as long as there’s spare cash availability.”

All in all, the investment firm sees risk-reward as favourable in Petrobras shares at the current price.

What could also help PBR climb in the months ahead is the oil price that CBA analyst warns could remain elevated as ongoing tensions in the Middle East could trigger a wider conflict.  

Petrobras lowered debt in its fiscal second quarter
 

Petrobras stock is worth owning also because it’s in the red at writing (year-to-date) even though a continued focus on growth and debt reduction helped it report upbeat financial results for its second quarter last week.

The New York-listed firm recorded $10 billion in operating cash flow and reduced its debt further to $2.5 billion in Q2.

While net income was weighed by a tax debt renegotiation programme that Petrobras joined in the second quarter, investors will read the company’s decision as a positive for the long-term as it “ended billion-dollar disputes that brought great uncertainty to the company’s cash flow,” CFO Fernando Melgarejo said in the recent earnings release.

Morgan Stanley’s optimism on PBR is widely shared by other Wall Street analysts.

The consensus rating on Petrobras’ share price is “overweight” at writing.

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