Stifel has initiated coverage on Gevo, giving it a buy rating with a price target of $10. With shares trading just short of $5.25 when Stifel's research note came out, the stock was bound to fly high today.
Stifel is optimistic about three things at Gevo:
- Management's technical expertise.
- The growing pipeline for Gevo's key project, Net-Zero 1.
- Gevo's "differentiated exposure to sustainable aviation fuel."
Gevo is an early-stage renewable energy company that uses feedstocks like corn to produce a four-carbon alcohol that's then processed into low-carbon gasoline and jet fuel. It also produces high-protein animal feed.
Early this year, Gevo launched its Net-Zero projects, which aim to produce liquid hydrocarbons using renewable energy sources like wind, biogas, and renewable natural gas. Gevo claims engines using the fuel will emit net-zero greenhouse gas emissions.
The concept has already found some takers, including:
- Delta Airlines (DAL -4.40%)
- Air Total
- Commodities trading company Trafigura
- Scandinavian Airlines System
- Europe-based chemical company HCS Group.
Gevo's first such Net-Zero project, Net-Zero 1, is being planned in South Dakota, with construction expected to start next year.
During its latest earnings conference call, Gevo said it currently has contracts worth $1.6 billion, and is negotiating contracts that could be worth $20 billion. Those numbers in particular seem to have caught Stifel's attention.
Gevo's technology sounds promising, but it's important to understand that Net-Zero 1 is still years away from production. There's another number you must know: Gevo now estimates the project will cost $980 million versus the $650 million it projected at the end of 2020.
Meanwhile, revenue more than halved to only $400,000 in its second quarter; it only recently restarted its plant in Luverne, Minnesota, which was shut during the pandemic.
But until Gevo's top line shows concrete growth, it's a risky stock, and I think much of the optimism is already baked into its price given its current market capitalization of $1.15 billion.