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Why Petroleo Brasileiro Stock Plummeted 22% at the Open Today

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

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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. 

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Stocks Mentioned

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

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

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