Shares of Petrobras (PBR) are on the rise after Bank of America Merrill Lynch and JPMorgan upgraded the stock to buy-equivalent ratings following the strong showing of Jair Bolsonaro in winning the first round of presidential elections in Brazil. The far-right candidate will face leftist Fernand Haddad in a second round run-off.

BUY PETROBRAS: In a research note this morning, Bank of America Merrill Lynch analyst Frank McGann upgraded Petrobras to Buy from Neutral, citing the strong showing of Jair Bolsonaro in winning the presidential election’s first round in Brazil, which he expects to lead to a lower perceived policy risk than had been priced into Petrobras’ stock. Although there is still significant energy policy uncertainty and limited clarity as to how the new government will deal with Petrobras, McGann told investors he believes the market had been expecting a less favorable election outcome. This would have been expected to have led to a more interventionist policy with regard to Petrobras and pricing, he contended. Additionally, the analyst pointed out that continued strong oil prices should enable Petrobras to generate strong cash flow over the next several years, which should substantially eliminate balance sheet issues that have weighed on the stock in recent years. McGann now expects net debt/net capital to decline below 40% within two years, even assuming no additional proceeds from asset sales.

The analyst also raised his price target on the ADRs to $20 from $17. Meanwhile, JPMorgan analyst Rodolfo Angele also upgraded Petrobras to Overweight from Neutral and raised his price target on the shares to $17 from $14. The analyst told investors in a research note of his own that he views the stock’s risk/reward as attractive amid rising oil prices and reduced political risk in Brazil with Jair Bolsonaro winning the presidential election’s first round. Further, Angele noted that the company’s valuations have de-rated considerably post the truckers’ strike in May, and said he sees it as a “solid” growth bottom-up story.