An attractive valuation and diminished risks make Petrobras a buy despite its recent rally, according to Goldman Sachs. Analyst Bruno Amorim upgraded the Brazilian petroleum company to buy . His price target of $18.10 implies an upside of 27.2% over Tuesday’s close, meaning the stock’s rally could still have momentum. “We believe the recent stock rally reflects greater visibility on what will be the new management’s approach on fuel pricing policy and capital allocation for the current cycle,” he said in a note to clients Tuesday. “Although we acknowledge visibility still remains limited, we believe those announcements at least partially reduced the possibility of an eventual worst case scenario that was expected by some investors.” Shares are up more than 1% before the bell. The stock has gained 33.6% so far in 2023, outperforming the broader market. PBR .SPX YTD mountain Petrobas vs. the S & P 500, year to date But Amorim said the stock is still attractive with valuation at around 15% of free cash flow in 2024 to 2025. By comparison, global majors are in the mid-to-high single digits when looking at the percentage of free cash flow with similar assumptions for oil prices. He also said the company has mitigated tailrisks following new clarifications on policies from the government — which holds stake in the company. Petrobras management has already said a 25% payout on earnings is too low and mentioned the possibility of buybacks. A new dividend policy is expected by the end of July, Amorim said. While the new pricing policy for fuel is considered convoluted, Amorim said the company should still follow international price trends. And there could be a delay or small discount compared with international prices, he noted. Amorim said the new policy can also potentially limit the risk of heavy subsidies on the fuel industry weighing on profitability. Capital expenditures tied to low carbon initiatives are expected to move to between 6% and 15% of the total from 6% now, he said. Outside of low carbon, the company said it’s focused on the upstream segment, refining and renewable energy. Amorim also noted the potential for the company to take a controlling stake in Braskem and acquire Vibra back after the fuel distribution business went private in 2019. — CNBC’s Michael Bloom contributed to this report.