Why Chevron Stock Rose as Much as 11.9% This Week


What happened

Shares of integrated energy giant Chevron ( CVX 1.35% ) rose as much as 11.9% this week, according to data from S&P Global Market Intelligence. By the close of trading on Thursday, March 3, the stock was sitting near its peak levels, up just shy of 11% since Friday’s close. A combination of industrywide and company-specific news was behind investors’ enthusiasm. 

So what

Chevron, like other oil and natural gas companies, has been benefiting from rising energy prices. There’s a number of reasons for this, but right now the most notable theme is that geopolitical tensions combined with a supply/demand imbalance has the world worried about the availability of oil and natural gas. Since Chevron’s top and bottom lines are heavily dependent on the price of these commodities, investors tend to bid up its shares when energy prices are rising. The company’s strong fourth-quarter 2021 financial results show just how much it can benefit when oil prices are high, with CEO Mike Wirth describing last year as “one of our most successful years ever.”

Image source: Getty Images.

However, that’s not the only reason why investors are upbeat about Chevron this week. On Monday, it announced an agreement to acquire Renewable Energy Group ( REGI 0.66% ) for $3.15 billion. Renewable Energy Group operates refineries that use waste oils to create usable products like biodiesel. There’s a couple of notable takeaways from this. First, Chevron is using its size and financial strength to buy its way into a clean energy niche, proving that it can use acquisitions to quickly change its business. Second, biodiesel is consistent with Chevron’s growing interest in low-carbon products, so the oil giant isn’t stepping too far afield as it works to get more green. Both are positives, and investors are likely rewarding the company for this move, as well.

Now what

But that’s not all. A day after the announcement of the Renewable Energy Group acquisition, Chevron updated investors on its long-term plans. It increased its share-buyback target, upped its return on capital-deployed target, and reaffirmed its commitment to the clean energy space. It now expects operating cash flow per share to expand at an annualized clip of 10% through 2026, assuming oil is at least $60 per barrel, which is well below current oil prices. All in all, the company is showing that it can adapt with the times and that the current energy market is going to be good for its business. No wonder investors bid the stock up.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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