The ethanol producer Green Plains, Inc. (GPRE) has gained 96.4% so far this year to close yesterday’s trading session at $25.87. The stock hit its 52-week high of $28 on February 19 when the company announced that three of its bio refineries have a long-term carbon offtake agreement with Summit Carbon Solutions (SCS). However, the stock has since lost 1.4%.

The company’s ambitious goal of transforming its entire platform by 2023 is underway but it’s too soon to judge if it will be successful in this. This, coupled with its  weak financials, fails to provide a positive outlook for GPRE.

Moreover, during the week ended February 12, 2021, according to the Energy Information Administration, ethanol production fell  to its lowest level in five months to 911,000 barrels per day, which is not good news for GPRE.

Here are the factors that we think could shape GPRE’s performance in the coming months:

Sale of Several Businesses

The company announced in late January that its subsidiary, Green Plains Ord LLC, had entered i an agreement with GreenAmerica Biofuels Ord LLC to sell its 65-million-gallon ethanol plant located in Ord, Nebraska for $64 million, plus working capital. Last October, GPRE  announced the sale of its remaining 50% joint venture interest in Green Plains Cattle Company LLC to a group of investment funds.

Also, GPRE’s subsidiary, Green Plains Hereford LLC, completed the sale of its ethanol plant located in Hereford, Texas, to Hereford Ethanol Partners, L.P. for $39 million, plus working capital in late  December.

Poor Profitability

In terms of its trailing-12-month gross profit margin, GPRE’s 4.4%  lags significantly the industry average  42.3%. Also, the stock has a negative value for its trailing-12-month levered free cash flow margin as compared to the industry average  6.1%.  GPRE also has negative values for ROE and ROAl.

Unimpressive Recent Financials

GPRE’s total revenues declined more than 33% year-over-year to $478.76 million for the fourth quarter, ended December 31, 2020. Its revenue from ethanol production decreased 18.4% year-over-year to $403.34 million for the quarter and its revenue  from the agribusiness and energy services segment decreased 62.7% year-over-year to $84.76 million. The company also reported net loss of $49.63 million for the quarter.

POWR Ratings Are in Sync with GPRE’s Bleak Outlook

GPRE has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. GPRE has a D grade for Quality, which is justified given the stock’s lower-than-industry profitability values.

The stock also has a D grade for Growth, in sync with  analysts’ modest revenue expectations. Moreover, GPRE’s EPS is expected to decline 16.7% for the quarter ending June 30, 2021.

Click here to access GPRE’s rating for Value, Momentum, Stability and Sentiment as well.

Of 33 stocks in the C-rated Agriculture industry, GPRE is ranked #25.

Better than GPRE: Click here to access nine top-rated stocks in the same industry.

Bottom Line

Even though GPRE has gained 96.4% so far this year, we think it wise to avoid the stock now because  it doesn’t seem to have much upside. The company is not only selling several of its businesses to pay its debts but is also undergoing an operational transformation. So, it’s better to wait and see if the company can successfully  transform its operations and generate income in the coming months.

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GPRE shares were trading at $27.48 per share on Tuesday afternoon, up $1.61 (+6.22%). Year-to-date, GPRE has gained 108.66%, versus a 3.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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