Petrobras downgraded to Buy despite 62% rally, seen undervalued with long-term growth potential.

Petrobras has been downgraded to a Buy rating after a strong 62% rally, but it remains undervalued due to Brazil's macroeconomic and investment cycle tailwinds. The company's high capital expenditures through 2028 will limit free cash flow and dividends in the short term but support asset growth for future gains. Risks include political uncertainty, a new 10% dividend tax on nonresident investors, and state ownership, which continue to weigh on valuation. Despite these challenges, Petrobras's intrinsic value is estimated to exceed its current market price, even under conservative assumptions and a high discount rate reflecting country and sector risks.