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Why Pacific Ethanol Stock Climbed 15% on Wednesday Morning

By Rich Smith - Updated Sep 16, 2020 at 10:46AM

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One analyst just quintupled its price target on the ethanol stock.

What happened

Shares of ethanol producer Pacific Ethanol (ALTO 2.86%) leapt out of the gate this morning and were up a strong 15% at 11:15 a.m. EDT. You can almost certainly thank the friendly analysts at H.C. Wainwright for that.

So what

This morning, Wainwright issued a new price target for Pacific Ethanol, a money-losing fuel-additives stock that the analyst had previously valued at a tiny $3 a share. But in a report covered by TheFly.com, Wainwright says the stock is now worth more than five times that at $16.

Credit COVID-19 for the change. Last quarter, as demand for ethanol to use in disinfectants and hand sanitizers exploded, Pacific Ethanol reported its first quarterly profit in 3 1/2 years. Wainwright calls the shift from producing ethanol to blend with gasoline, to producing ethanol to kill germs a significant strategy move for the company, and expects Pacific Ethanol to devote roughly one-fifth of future production to this new purpose.

Woman dispenses hand sanitizer from a bottle

Image source: Getty Images.

Now what

The new and improved business model transforms Pacific Ethanol from a company destined to produce losses ad infinitum, into one with a good chance of posting profitable growth for years to come, and Wainwright isn't alone in holding this view.

According to the latest S&P Global Market Intelligence tally, analysts on average predict that 2020 will see the company report its first full-year profit since 2016. And profits could grow more than 350% next year, to as much as $1.18 per share. At barely $5.50 a share today, that makes Pacific Ethanol a bargain.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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