Gevo, Inc. (GEVO) is a Colorado-based renewable chemicals and advanced biofuels company.  It  uses low-carbon renewable-resource-based carbohydrates as raw materials to achieve zero carbon emissions and to reduce greenhouse gas emissions with sustainable alternatives. It is developing renewable electricity and renewable natural gas for use in production processes. Its operating segments are the Gevo segment and the Gevo Development-Agri-Energy segment.

The potential large-scale energy migration (from carbon-based to renewable) across the United States under the new Presidential administration suggests a major restructuring of the country’s industrial and infrastructure base is in the offing. As most major economies are also at the initial stages of shifting to renewable energy sources with ambitious plans to eliminate carbon emission over the next couple of decades, the clean energy industry has substantial growth potential. The industry saw huge growth last year alone, despite pandemic-driven economic disruptions.

Although it is a development-stage company, GEVO has been operating as a power player in this clean energy revolution. The company claims that its products perform as well or better than traditional fossil-based fuels but with substantially reduced greenhouse gas emissions.

In December, GEVO signed a deal with mega commodities dealer Trafigura. It is Gevo’s biggest contract to date. The company agreed to supply 25 million gallons of biofuels per year to Trafigura.

The stock has gained a mammoth 2,013% in the past six months after languishing for a prolonged period. This impressive performance and  potential upside based on several factors have helped it earn a Buy rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates GEVO:

Trade Grade: A

GEVO is currently trading higher than its 50-day and 200-day moving averages of $4.29 and $1.80, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 1,055% returns over the past three months reflect solid short-term bullishness.

GEVO recently unveiled its  Net Zero Projects concept, which is about the production  of energy-dense liquid hydrocarbons using renewable energy and Gevo’s proprietary technology. The company is currently developing its Net-Zero 1 Project at Lake Preston, South Dakota.

GEVO expects  Net-Zero 1 will be capable of producing approximately 45MGPY of liquid hydrocarbons (jet fuel and renewable gasoline) that when burned should have a “net-zero” greenhouse gas footprint as measured across its  whole  lifecycle based on Argonne National Laboratory’s GREET model. This volume of fuel is estimated to be worth approximately $100 million per  year. In addition, Net-Zero 1 is expected to produce at least 350,000,000 lbs. of high protein animal feed annually.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers,  GEVO is not well positioned. The stock is currently trading 23.5% below its 52-week high of $14.50.

Looking at the past three years, the stock has returned a mere 3.6%. In addition,  GEVO’s top line has declined at a CAGR of 23.6% over the same period. In the third quarter, ended September 2020, GEVO posted a top line of $0.2 million, versus $6.1 million in the same period last year. Lower sales were driven by an unfavorable commodity environment and termination of its production of ethanol and distiller grains during the virus coronavirus pandemic .However, its adjusted net loss came in at $6.5 million, a significant improvement from a year-ago $8.6 million loss.

GEVO recently announced key business initiatives for 2021. The company plans  to complete front-end engineering work for Net-Zero 1 by year’s end. GEVO also anticipates signing take-or-pay contracts with additional customers in 2021. The company intends to support additional Net-Zero projects (like Net-Zero 2 and 3) through additional contracts this year. Moreover, GEVO seeks to secure additional plant sites for such projects to accommodate additional offtake agreements.

GEVO also plans to close financing for its NW Iowa Project and commence construction this year, and secure investment agreements with strategic and financial project investors for Net-Zero projects if terms are attractive.

Peer Grade: C

GEVO is currently rated #58 of 103 stocks in the Chemicals group. Other popular stocks in this group are Shin-Etsu Chemical Co. Ltd. (SHECY), Asahi Kasei Corporation (AHKSY) and Toray Industries, Inc. (TRYIY). While TRYIY has gained 45.4% in the past three months, SHECY and AHKSY have returned 32.7% and 30.1%, respectively, over this period.

Industry Rank: A

The Chemicals industry is ranked #20 of  123 industries. The companies in this industry manufacture basic, intermediate, and specialty chemicals that are used primarily as raw materials in the manufacture of products and services worldwide. Because chemicals have wide application in industrial and consumer products, demand is driven by the overall economic health. Thus, the gradual resumption of industrial and economic activities should benefit the industry in the coming quarters.

Overall POWR Rating: B (Buy)

Overall, GEVO is rated a Buy due to its impressive financial position, underlying industry strength, favorable macro environment, and solid short- and long-term bullishness, as determined by the four components of our overall POWR Rating.

Bottom Line

GEVO has soared at an invincible pace over the recent months as the company announced the Net-Zero 1 project and hopes that the Biden administration will unleash a boom in green energy and alternative fuels. GEVO’s sound business model, and its various expansion execution projects makes it well-positioned to significantly contribute to the sustainable energy drive worldwide.

GEVO already supplies  sustainable aviation fuel (SAF) to further support carbon neutrality goals in the aviation industry. And in commencing deliveries of renewable hydrocarbons to Trafigura, the deal  could produce billions in revenue for this small company in the coming years.

GEVO currently  has $535 million in cash and no significant debt following a stock sale that closed earlier this week. So, GEVO should be able to fund 100% of the investment necessary for its Net-Zero 1 and various other projects.

Analyst sentiment, which provides a  good sense of a stock’s future price movement, is good  for GEVO. Its average broker rating of 1.50 indicates  favorable analyst sentiment. Wall Street analysts expect GEVO’s current year revenues and EPS to grow 10.8% and 79.8%, respectively. We think this outlook should keep its price momentum alive this year.

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GEVO shares were trading at $10.93 per share on Friday morning, down $0.16 (-1.44%). Year-to-date, GEVO has gained 157.18%, versus a -0.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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