GPRE, with 1 billion gallon annual ethanol production capacity & 20% short interest broke out on the favorable ethanol environment this past week despite they're aggressive hedging and weakness in broader market. They're leaving a lot on the table with their hedging but are the best known ethanol pure play.
With corn looking increasingly likely to remain below $4 bushel rest of year, I prefer the less hedged names of PEIX, REX, and even refiner/ethanol producer VLO.
Looking for upside in each of these next week, with PEIX as my largest position and ~13% short. Institutional ownership updates for Q2 due next week and are likely to double, given the recent Russell addition.
For PEIX, Q1 would have been ~1.50 eps if not for non cash adjustment for warrant fair value (SP tripled in Q1). Instead, the $35.8 million fair value adjustment resulted in a GAAP loss of .69 per share. This was literally due to the appreciation in SP given in-the-money warrants. Not near as many of those now & SP actually decreased in Q2 so no concerns of a repeat in next report.
Q2 likely to be >1.25 eps based on margin trend. I think stock will trend up approaching the report in anticipation as more become aware. Production margins reached a 5-week high this week for ethanol producers as ethanol futures are holding up even with corn plunging.
With EV/EBITDA of 4...I don't think this will last even as a commodity play. No ethanol imports from Brazil (drought), coupled with increasing exports should make this a nice story for remainder of 2014.
Heavy in July & Aug calls here & expecting chart to really start shaping up with break of resistance at 16-16.30.
