Morgan Stanley upgraded Petroleo Brasileiro Petrobras (NYSE:PBR) to Overweight from Equal-Weight in a note Wednesday, raising the firm's price target on the stock to $16.50 from $12.50 per share.
The analysts told investors in a note to "buy the dividend potential in 2023."
"PBR has been a strong performer YTD, but we see further room for capital appreciation," the analysts said. "And the potential total return — 51% after a ~16% dividend yield — looks compelling enough to us to justify a more positive stance on the stock in 2023."
"Our new estimates, using lower oil prices from the current forward curve, have PBR still generating FCF of $23B in 2023, a 30% yield. And our new dividend expectation, at 40% of FCF (before interest), generates a compelling 16% yield," they added.
The research firm also stated that the firm has gradually become more constructive on the outlook for dividend distribution into 2023.
"From a bearish assumption late last year, when we estimated a 32.5% payout over net income (the historical average), we moved to a 40% payout over net income, and now to 40% of FCF," the analysts wrote.