Roth Capital Reiterates Buy on Pacific Ethanol Inc on Back of Ethanol Demand Growth
In a research report released Wednesday, Roth Capital analyst Craig Irwin reiterated a Buy rating on Pacific Ethanol Inc (NASDAQ:PEIX) with a $16 price target, after the Federal Highway Administration released a key data point showing people are driving more on cheap gas, with 4.9% growth in miles driven for January 2015.
The analyst expects rising gasoline demand to correspond directly to increased ethanol demand. The analyst continues to see ethanol demand growth with limited supply as supportive of rebounding crush margins and industry profitability. The demand tailwinds from cheaper gasoline are clearly there for ethanol, in his view.
Irwin noted, “Our bullish thesis on ethanol relies on 2% demand growth in 2015, with exports remaining strong, consistent with 2014 levels. Practical U.S. ethanol production capacity is ~14.7bn gal/y versus 14.4bn gal in 2014 demand (including 13.5bn gal consumption and 847m gal net exports). The handful of plants not running leaves the industry already near full utilization. Ethanol is blended at 10% in almost all U.S. gasoline as an oxygenate. If we assume recent trends of increasing miles driven continues, this should support ~2% demand growth (~270m gal incremental 2015 demand), against very limited incremental 2015 capacity.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Craig Irwin has a total average return of -6.1% and a 41.5% success rate. Irwin has a 5.5% average return when recommending PEIX, and is ranked #3349 out of 3547 analysts.