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Why Centennial Resource Development Stock Jumped as Much as 6% Today

By Reuben Gregg Brewer – Oct 22, 2021 at 5:14PM

Key Points

  • Centennial Resource got price target upgrades from Piper Sandler and Susquehanna, but no change in the analysts' calls.
  • Today's move is probably more fundamental to the oil and natural gas driller's business.

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The oil driller got a second price upgrade in as many days, but there's probably a different reason for the sharp stock advance.

What happened

At roughly 3 p.m. EDT on Oct. 22, shares of exploration and production company Centennial Resource Development (PR 2.04%) were higher by 6.5%. Swift price moves aren't exactly shocking for this energy driller. The day's gain, meanwhile, could have been driven by one of two reasons.

So what

With a roughly $2 billion market cap, Centennial is a particularly small player in the energy patch. It is up more than 370% so far this year, but witnessed a painful drawdown of nearly 45% between June and September before rallying back toward yearly highs. This is the type of volatility you can see in a small exploration and production name, where its top and bottom lines are driven primarily by the ups and downs of the prices of oil and natural gas. Essentially, it is a somewhat leveraged play on the price of energy.

A person standing in front of an oil rig with tablet in their hand.

Image source: Getty Images.

Which is likely why the stock is higher today, given that both oil and natural gas are on the rise, advancing around 1.5% and nearly 3%, respectively, at around the same time. While this is the most likely reason for the investor enthusiasm today, the stock also got a price upgrade to $7 per share from Wall Street's Susquehanna. That followed a similar price target move from Piper Sandler yesterday. Investors like to see price upgrades, so this is a clear tailwind. But it's notable that neither company upgraded its buy/sell call, with each keeping Centennial Resource Development at neutral. 

Now what

While the stock did actually move up to $7 or so today, the truth is that the day's energy price advance probably has more to do with the stock's move than either of these price target changes. In fact, the moves were likely more about the analysts keeping their price targets in line with the market price of the stock than anything else, given the fact that the analysts remained neutral on the shares. For investors, meanwhile, the frequent, and often dramatic, ups and downs here should probably keep most on the sidelines. This small-fry oil and gas company is really only appropriate for those with strong stomachs and a strong conviction about the direction of oil and gas prices.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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