The 38.87% jump observed in the stock price of Renewable Energy Group Inc. (NASDAQ: REGI) last week continues to maintain its impressive position and has gone on to reach a further rise by the same magnitude of growth during pre-market trading, reaching $60.84 per share. This comes after unofficial reports earlier this week indicating successful talks with the fossil fuel giant, Chevron Corporation for the acquisition of the company.
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According to sources such as Bloomberg, the acquisition deal is expected to amount to $3 billion, indicating a major strategic shift by Chevron, in moving towards the renewable energies domain. Although no official disclosure relating to the deal had been made, sources indicate that Chevron is negotiating to close the acquisition deal at $61.50 per share, with an announcement expected to be made later this week. These upticks in trading for the REGI stock reflect a glimmer of optimism for those holding a preference towards renewable energy stocks, given their growth potential.
The crisis between Russia and Ukraine further places skepticism in the sustainability of the fossil fuel industry, and its inherent sensitivity to political instability. With global fuel prices being driven up to $105 a barrel, renewable energy investments deliver fresh optimism to energy companies such as Chevron, as is indicated by the market response to the REGI stock, which saw growth of 77.9% in a mere five days.
Renewable Energy Group, along with other major companies from the clean energies sector saw a significant slump in value in February 2021, given prevalent concerns of soaring interest rates, which the industry is yet to recover from. The industry as a whole is highly sensitive to interest rate climbs, given its nature of operations, which entail hefty upfront investments that are typically recovered over decades, as demand for renewable energy is met. Where renewable energy companies are reliant on debt financing, their exposure to interest rate risk is a constant worry for investors.
Alternatively, the potential $3 billion injections into Renewable Energy Group, being an equity financing facility for the company protects the company from this exposure, and subsequently investors from the uncertainty of US interest rates. In the wake of potential inflation, sparked by tensions in Eastern Europe, the direction of interest rate trajectory remains unclear, which makes long-term debt financing economically unviable. The REGI stock avoids this problem altogether if the $3 billion dollar Chevron deal is finalized.