On Monday, UBS adjusted its outlook on Green Plains (NASDAQ:GPRE) Renewable Energy (NASDAQ:GPRE), reducing the stock's price target to $31.00, down from the previous $33.50. Despite the lower target, the firm maintains a Buy rating on the shares. The adjustment follows observed declines in ethanol fundamentals, with a notable drop in ethanol margins and corn oil prices.
Ethanol margins, which averaged 89 cents per gallon in the third quarter of 2023, fell to 71 cents per gallon by the end of the same quarter and have since decreased to an average of 33 cents per gallon in the first quarter of 2024. The margins further declined to 20 cents per gallon last week, according to an indicator from VLO. Similarly, corn oil prices have been under significant pressure, plummeting from 71.6 cents per pound in August 2023 to 47.8 cents per pound.
Due to these factors, UBS has revised its earnings estimates for Green Plains for both 2024 and 2025. The firm has also expressed a lack of confidence in the near-term recovery of corn oil prices, citing downward-trending D4 RIN prices as a contributing factor. Expectations are set for a potential recovery in the second half of 2024 for both ethanol and corn oil, but the first half of the year is expected to be challenging.
UBS has lowered its 2024 EBITDA projection for Green Plains to $185 million from the previous estimate of $251 million. The 2025 EBITDA forecast has also been reduced to $336 million from the earlier prediction of $385 million. The revised price target of $31 per share is based on a valuation multiple of 6.8 times the next twelve months' EBITDA, applied to the lowered 2025 EBITDA estimate, and accounts for net debt and non-controlling interest deductions.
InvestingPro Insights
Amidst the revision of financial forecasts for Green Plains Renewable Energy (NASDAQ:GPRE) by UBS, InvestingPro data provides additional context to the company's current financial health. The market capitalization stands at approximately $1.34 billion USD, reflecting the market's valuation of the company. Despite a challenging environment for ethanol margins and corn oil prices, as mentioned in the article, Green Plains is trading at a high EBITDA valuation multiple, with InvestingPro data indicating a figure of 652.02% growth in EBITDA for the last twelve months as of Q4 2023.
One particularly concerning metric is the negative P/E ratio, which currently stands at -13.71, suggesting that investors are anticipating future profitability challenges. This aligns with the InvestingPro Tips that highlight the company's lack of profitability over the last twelve months and the fact that four analysts have revised their earnings downwards for the upcoming period. However, it's worth noting that analysts predict the company will be profitable this year, offering a potential silver lining for investors.
On the balance sheet front, Green Plains operates with a moderate level of debt and its liquid assets exceed short-term obligations, which may provide some financial stability in the near term. This is a critical aspect as the company navigates through the current market headwinds. It is important to mention that Green Plains does not pay a dividend to shareholders, which may influence investment decisions for those seeking regular income from their investments.
For readers looking to dive deeper into the financials and future outlook of Green Plains, there are additional InvestingPro Tips available at: https://www.investing.com/pro/GPRE. These tips can provide further insights into the company's performance and potential investment opportunities. Additionally, use coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, offering access to a total of 7 tips for Green Plains.
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