How Will Chevron's (CVX) Latest Acquisition Shape Its Future?

Chevron CVX recently announced that it has closed the deal to acquire Renewable Energy Group for $3.15 billion in an all-cash deal for which the oil and gas supermajor paid $61.50 per share of the biodiesel producer. The transaction, which also fulfilled the European antitrust authority’s stipulation to not stifle innovation, is in line with CVX’s vision of churning out lower carbon energy in the future.   

During the initial announcement in February, Chevron management noted that this deal amalgamates its extensive experience in manufacturing, distribution and commercial marketing with the acquiree’s increasing renewable fuels production and leading feedstock competencies. It is in line with the San Ramon, CA-based energy giant’s objective to boost its renewable fuels output capacity to 100,000 barrels per day by 2030 and also provides surplus feedstock supplies and pre-treatment facilities.

With investors stepping up pressure on carbon emitters, the likes of CVX are looking at a monumental shift in their business models by effectively moving away from their primary operations of oil and gas development. To this end, Chevron’s existing renewable fuel partnership with Bunge, together with Renewable Energy Group’s biodiesel production facilities, will transform the energy behemoth into one of the largest North American renewable fuels producers.

As it is, the annexure of Renewable Energy Group is expected to augment Chevron’s earnings in the first year after closing and increase free cash flow after the start of Renewable Energy Group’s Geismar expansion. CVX will also generate EBITDA in the $500-$600 million range by 2025.

Zacks Rank & Key Picks

Chevron is one of the largest publicly traded oil and gas companies in the world with operations that span almost every corner of the globe. The only energy component of the Dow Jones Industrial Average, Chevron is fully integrated, meaning it participates in every aspect related to energy — from oil production, to refining and marketing.

Chevron currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Civitas Resources CIVI, Comstock Resources CRK and Earthstone Energy ESTE, each carrying a Zacks Rank #1 (Strong Buy), currently.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Civitas Resources is valued at some $6.1 billion. The Zacks Consensus Estimate for CIVI’s 2022 earnings has been revised 58.4% upward over the past 60 days.

Civitas, headquartered in Denver, CO, has a projected earnings growth rate of 368.6% for 2022. CIVI shares have gained around 41.3% in a year.

Earthstone Energy  beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 35%, on average.

Earthstone Energy is valued at around $2.1 billion. ESTE has seen its shares gain around 69.5% in a year.

Comstock Resources is valued at approximately $3.9 billion. The Zacks Consensus Estimate for CRK’s 2022 earnings has been revised 43% upward over the past 60 days.

Comstock Resources, headquartered in Frisco, TX, has a trailing four-quarter earnings surprise of roughly 3.7%, on average. CRK shares have surged around 159.3% in a year.  

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