Gevo Inc (NASDAQ:GEVO) climbed after analysts at Noble Capital repeated an “Outperform” rating and $16 price target on its shares, hailing the company's first-quarter results that “met expectations.”
In a note to clients, the analysts said that beyond the company's financial performance during the quarter, the “real story” is “plant progression.”
“Projects are moving forward. In January, Gevo announced it had begun the process of bringing its dairy manure-based project online in order to apply for credits,” said the analysts at Noble Capital.
“The credits could contribute $16-$20 million annually, and management is prepared for timing issues between production and receipt of credits.”
Gevo shares traded 5.8% higher at $3.26 in morning trade on the tech-dominated Nasdaq.
Noble Captal noted that in March this year, Gevo signed several "take-or-pay" agreements with airlines to provide jet fuel made from ethanol at its Net Zero One plant.
In fact, Gevo signed a “take-or-pay” agreement with Delta Air Lines (NYSE:DAL) Inc to supply 75 million gallons of sustainable aviation fuel (SAF) per year for seven years. Based on current assumptions, including those around future pricing of commodities, Gevo estimates that the agreement should generate about $2.8 billion of revenue, inclusive of the value from environmental benefits.
The agreement replaces the existing agreement signed with Delta in 2019 to purchase 10 million gallons per year and bolsters Delta's commitment to incorporating SAF into its operations.
“In total, Gevo has contracts for 200 million gallons of fuel annually and has stated a goal of delivering 1 billion gallons of fuel by 2030. Plant operations are on track, although management indicated it has used up some of the slack assumed in its timeline,” added the analysts.
Significantly, the plants in operation and under planning are only the beginning.
“Management describes the Net Zero Plant as stackable and easily locatable. Development of the first plant in Lake Preston has been an educational process,” pointed out the analysts. “So far, the plant is running on schedule and on budget. Recent adjustments now call for higher output based off of the same costs.”
Meanwhile, Gevo reported earnings of $200,000 for the three months ended March 31, 2022, up from $100,000 in the first quarter of 2021. Its adjusted net loss was $15.7 million in the quarter, compared to $10 million in the comparable quarter a year earlier.
“The company's cash position is solid at $413 million,” said the analysts.
Englewood, Colorado-based Gevo is in the early stages of biofuel development but has the financial, sales, and operational backing of major players in the industry.
“We look for the stock to rise as operations are developed and expanded,” concluded the analysts.
Meanwhile, analysts at Water Tower Research highlighted the things Gevo had got right during the 1Q, which were providing a strong tailwind.
“RNG plant to kickstart revenue; key tie-ups with top airlines to supply SAF; and the Net-Zero 1 project is on track,” said the analysts at Water Tower Research.
They added that Gevo has received conditional use permits for the Net-Zero 1 plant and the wind turbines that will help power the project.
"Gevo anticipates Net-Zero 1 to be completed in late 2024 and operational in 2025, with expected annual EBITDA of $150-200 million," added the analysts.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
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