Gevo Inc (NASDAQ: GEVO) is among the stocks that have both strong believers and equally-critical naysayers. While the company has recently offered a lot of fodder to the bulls, bears point out the lackluster historic performance and share dilution as reasons for their skepticism.
Earlier this week, the company reported wider-than-expected losses as revenues plunged owing to COVID-driven lockdowns. Loss from operations stood at $7 million, wider than the loss of $6.2 million reported last year. However, if you view the company’s growth prospects, you might see a different picture, especially under the administration of Joe Biden.
The President has committed to investing approximately $400 billion in clean energy technologies, and Gevo is likely to be a beneficiary of this decision. Biden had earlier this year introduced Gevo’s Co-founder Frances H. Arnold to his science team, which should translate to a certain extent as benefits for the company going forward.
Meaningful revenues soon
The Englewood, Colorado-based firm has developed technology to convert renewable energy into gasoline, jet fuel, and other sustainable ingredients, with a vision of achieving net-zero carbon emission. Gevo’s has a slew of popular names as its customers and partners, including Delta Air Lines, Haltermann Carless, Trafigura Group, and Total SE.
In an email interview, CEO Dr. Patrick R. Gruber told AlphaStreet that Gevo should see meaningful revenues next year, once its biogas project commences operations. The executive was referring to the firm’s Net Zero Projects announced earlier this year, which will leverage Gevo’s technology by generating biogas to meet its own power requirements.
Gruber said that Gevo will be a milestone company for the next couple of years, with its focus almost entirely concentrated on Net Zero projects 1,2, and 3. “The Net Zero 1 EBITDA is projected at this point to be greater than $100 million per year. Just using that cash flow stream and applying multiples typical of companies like ours, which now include de-SPAC-ed (our market potential and profit potential is greater than most in the renewable chemicals space) or even comparing to a Neste, one would calculate a share price value that is high,” the executive wrote in the email.
The front-end engineering works for Net-Zero 1 are projected to be complete by the end of 2021, and Gruber expressed optimism in recovering its development expenses in the following year.
For more insights on Gevo, Inc, read the latest earnings call transcript
Project funding
Gevo is currently working with Citigroup to work out a potential bond offering to finance these projects. During the post-earnings conference call on Wednesday, the CEO elaborated on the same. “We have $530 million of cash on the balance sheet and no material debt. That money should enable us to develop multiple plants and make the full equity investment in our Net-Zero 1 plant rather than being dependent upon a third-party. We also have the cash and the balance sheet that should allow us to sponsor significant equity investments in future Net-Zero plants such as Net-Zero 2 or Net-Zero 3 projects.”
The management has projected a global liquid fuels demand of 245 billion gallons by 2050, even in a scenario of 80% EV (electric vehicle) penetration, offering plenty of upside for growth.
The company’s stock price has doubled since the start of the year and currently trades at less than $9 per share. GEVO has a 12-month average price target of $17, representing a 92% upside from Thursday’s close.
____