Water Tower Research LLC noted that Gevo Inc's (NASDAQ:GEVO) net-zero plant is no longer just an idea but is being validated by the company inking approximately $1.6 billion in offtake agreements.
In a note to clients, Water Tower Research also focused on Englewood, Colorado-based Gevo’s partnership agreement with Google Cloud to evaluate and verify the effectiveness of next-generation biofuels throughout the supply chain using full lifecycle data tracking for sustainability.
“Gevo expects to build more on technology and tools to track the carbon intensity of renewable natural gas, sustainable aviation fuel, renewable diesel, farming, and eventually forestry and forest products,” said the analysts at Water Tower.
In addition, Water Tower noted that building off the net-zero concept, Gevo believes it has a clear pathway to significant cash flow.
“This is no longer just an idea but is being validated by the company’s inking of $1.6 billion in offtake agreements as part of an approximately $20 billion pipeline of contract negotiations,” said the analysts.
“Facilitating even part of this pipeline would require multiple net-zero plants, each producing an estimated $150-160 million in EBITDA per year at the plant level based on the company’s current assumptions.”
The analysts said this is backed by Gevo having over $550 million in cash, equivalents, restricted cash, and marketable securities.
Meanwhile, analysts at Noble Capital focused on Gevo’s direct offering.
“The offering should not come as a complete surprise given the large capital expenditures the company is about to undertake. Still, some investors might have found the offering premature given Gevo's current cash position of $430 million and an operating cash burn of only $20 million,” said the analysts at Noble Capital.
Gevo announced a direct offering of $150 million in common stock to institutional investors at $4.50 per share. At this price, the sale should result in expected gross proceeds of $150 million, which Gevo says will be used to fund capital projects, working capital, and general corporate purposes.
The analysts said Gevo stock "will most likely be volatile over the next few years" until plants have been constructed and are generating cash.
“Investors should maintain a long-term perspective and focus on construction progress and not short-term stock price volatility. As such, we see recent weakness as a buying opportunity and maintain our Outperform rating and $16 price target,” concluded the analysts.
Gevo shares currently trade for $3.02 on the tech-dominated Nasdaq.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
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