Please ensure Javascript is enabled for purposes of website accessibility

Why Petroleo Brasileiro Stock Plummeted 22% at the Open Today

By Reuben Gregg Brewer - Feb 22, 2021 at 11:17AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the Brazilian energy company took it on the chin this morning, thanks to the country's president.

What happened

Shares of Petroleo Brasileiro (PBR 2.75%) fell a shocking 22% as trading got under way on Wall Street today. Although not exactly a household name in the United States, Brazillian Petroleo Brasileiro (often called Petrobras for short) is one of the largest energy companies in South America and sports an over $50 billion market cap (taking into account the roughly 20% nosedive). It is a major player in the global energy sector, often partnering with names you likely do know, like ExxonMobil and Chevron.   

So what

One of the biggest differences between names like Exxon and Chevron and Petroleo Brasileiro, however, is who controls them. Exxon and Chevron are private entities owned by shareholders. The Brazilian government owns nearly 37% of Petroleo Brasileiro's stock and 50% of the company's voting rights. Put simply, it does what the government tells it to. And, over the weekend, the president of Brazil decided to fire its CEO.   

A man sitting on a step holding his head with stock tickers behind him and a falling stock price chart.

Image source: Getty Images.

Investors don't usually like it when governments get directly involved with companies like that, even when they are effectively state controlled. So it isn't shocking that the stock tanked on the news. For some investors it may have actually been something of a shock, if they didn't realize the government role played here. Petroleo Brasileiro preferred shares also fell dramatically on the news, with a 22% decline largely mirroring the stock.

Now what

Investors are probably right to be concerned about the CEO firing, which has nothing to do with the actual performance of the CEO, but rather with the near- and long-term implications of the Brazilian president making the call to fire the head of Petroleo Brasileiro. Indeed, the choice is clearly politicizing the business and that means investors probably aren't at the top of management's mind right now. There are, of course, even broader implications about the business climate in Brazil that should be considered given this news. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Petroleo Brasileiro S.A. - Petrobras Stock Quote
Petroleo Brasileiro S.A. - Petrobras
$15.15 (2.75%) $0.41
Petroleo Brasileiro S.A. - Petrobras Stock Quote
Petroleo Brasileiro S.A. - Petrobras
$13.93 (3.57%) $0.48

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.