Rodman & Renshaw analyst Amit Dayal is out with a new research note on shares of Gevo, Inc. (NASDAQ:GEVO), after the biofuel maker released its second quarter results on Friday. Specifically, Gevo posted revenue of $7.5 million beating Dayal’s estimates of $5.9 million. Looking forward, the company forecasts to produce less than 500K gallons of isobutanol in 2017 (previously targeted 500K gallons in 2017). The analyst believes that GEVO’s decision to cut production was in-line with the goal of minimizing cash burn and saving costs at Luverne, where current infrastructure is costly.
Despite current demands for GEVO’s isobutano, the analyst sees room for improvement opining: “From a volume perspective this demand is still small and needs further distribution build out to justify higher production volumes at Luverne. We believe GEVO’s distributors are making margins on this isobutanol and therefore continue to invest in mixing capability to make this fuel available to end customers. In our opinion, as this distribution is built out, we should see higher isobutanol production at Luverne. We believe GEVO is working towards establishing take-or-pay type offtake agreements with large customers for both isobutanol and isooctane. To do this, management is trying to give itself a longer runway with available cash and therefore being conservative on isobutanol production in the near term. The company also recently announced the availability of its isobutanol technology for licensing in partnership with Praj Industries. Licensing efforts on this front are expected to be focused on Praj plants overseas with initial capacity targeted to come online in the 2019-2020 timeframe. If this partnership develops meaningfully, it should generate a healthy revenue stream for GEVO without any CapEx requirements.”
Dayal believes that demand for isobutanol will continue to expand, considering the number of successful commercial airline flights that have used to Gevo’s isobutanol to power their planes over the last several quarters. With this in mind, the analyst is expecting the company to become EBITDA profitable by 2019 and reach $122 million in revenue by 2023 up from his projected 2017 revenue of $22.3 million.
The analyst reiterates a Buy rating on the stock with a price target of $12, representing a considerable 1,867% increase above current levels. (To watch Dayal’s track record, click here)