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Why Pacific Ethanol Stock Just Popped 14%

By Rich Smith – Updated Sep 29, 2020 at 1:17PM

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Investors respond to a new and improved price target.

What happened

Investors in ethanol producer Pacific Ethanol (ALTO -1.09%) are having a terrific year. Since 2020 started -- and the COVID-19 crisis with it -- the company has evolved beautifully from a producer of unprofitable gasoline additives into a producer of very profitable hand sanitizer and disinfectant active ingredients.

It's still producing alcohol, mind you. It's just that now it's making money doing that -- and Pacific Ethanol's stock price is up more than 10 times in value as a result.

A glowing green arrow climbs on a stock screen

Image source: Getty Images.

So what

Its shares are going on another little tear this afternoon, as the stock price has risen 13.6% through 12:30 p.m. EDT in response to a price target hike from an analyst at investment bank Craig-Hallum.

As reports today, the analyst hiked the firm's price target from $9 a share to $13 on the conviction that the shift in Pacific Ethanol's business model is both high quality and "mostly being missed by investors."

Now what

Craig-Hallum sees a wide range of valuations for Pacific Ethanol going forward as it capitalizes on its position as a premium producer of USP-grade alcohol. In a bull case scenario in which Americans continue to see a heightened need for disinfectants, the analyst sees the potential for Pacific Ethanol shares to rise as high as $20 a share, nearly three times where they trade today.

More muted assumptions -- say, profit margins getting cut as more competitors join in producing this commodity product -- imply lower valuations. Still, worst case, the analyst sees Pacific Ethanol as worth no less than $8 a share, which is still more than the stock costs, even after today's run-up.

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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