Leading biorefining company Green Plains Inc. (GPRE) in Omaha, Neb., is a producer and distributor of ethanol in the United States and internationally. The renewable energy company’s non-ethanol business is well-positioned to benefit from the strength in renewable corn oil and global protein markets. But GPRE’s shares have dipped 16.3% in price over the past month with growing investor pessimism surrounding its fuel alcohol production and supply chain headwinds. Its distillers' grains declined 5.8% year-over-year in the fourth quarter.
Closing its last trading session at $26.93, GPRE’s stock is trading 39.2% below its 52-week high of $44.27, which it hit on November 9, 2021.
The stock is currently trading lower than its 50-day and 200-day moving averages of $33.38 and $34.29, respectively, indicating a downtrend. While the growing global demand for protein and renewable corn oil bodes well for the ethanol producer’s high-value ingredient platform, delays in production facilities could mar its growth. In addition, the company’s recent decision to declassify its board of directors could lead to volatility in the stock in the near term.
Here is what could influence GPRE’s performance in the near term:
Business Headwinds
Although GPRE’s plants have begun to ramp up toward a return to full capacity, the ethanol maker suffered supply chain and permitting delays at certain facilities in the fourth quarter. This has negatively affected its alcohol production. In addition, the company suffered grain bin damage at its York location, which restricted its production capacity for specialty alcohols.
GPRE produced 200.5 million gallons of ethanol in the fourth quarter of 2021, compared with 214.2 million gallons in the fourth quarter of 2020.
Weaker Top and Bottom-Line Growth and Profitability
GPRE’s revenues from partnerships declined 10.4% year-over-year to $19.09 million in the fourth quarter, ended Dec.31, 2021. The company’s gross margin under the agribusiness and energy services segment decreased 68.8% from the prior-year period to $4.59 million. Its operating income under the same segment fell 79.7% from the prior-year quarter to $1.74 million. And it reported a $0.30 loss per share during this quarter. Furthermore, the company’s net loss stood at $3.87 million, while its loss per share came in at $0.18.
The company’s 6.33% trailing-12-month gross profit margin is 85% lower than the 42.3% industry average. Also, GPRE’s trailing-12-month net income margin and EBIT margin are negative 2.3% and 0.1%, respectively. And its trailing-12-month ROA and ROE are negative 3.1% and 8.3%, respectively.
Premium Valuation
In terms of non-GAAP forward P/E, the stock is currently trading at 39.05x, which is 245.5% higher than the 11.30x industry average. Also, its 20.98 trailing-12-month EV/EBITDA multiple is 102.7% higher than the 10.35 industry average. Furthermore, GPRE’s 342.33 trailing-12-month Price/Cash flow ratio compares with the 6.64 industry average.
POWR Ratings Reflect Bleak Prospects
GPRE has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GPRE has a D grade for Quality. This is reflective of the stock’s weak profitability.
GPRE has a Value grade of C, which is reflective of its stretched valuation. Also, it has a D grade for Stability, in sync with its relatively high 1.71 beta.
In addition to the grades we have highlighted, one can check out additional GPRE ratings for Sentiment, Growth, and Momentum here. GPRE is ranked #22 of 29 stocks in the C-rated Agriculture industry.
Bottom Line
Analysts expect GPRE’s EPS to decline 35% year-over-year to $0.13 next quarter. Even though the optimism surrounding expanding demand for the company’s ultra-high protein and value-added ingredients and renewable corn oil should boost its progress, the company remains unprofitable. Given that the supply chain woes and limited production capacity could negatively impact the renewable company’s business, it is no surprise that its growth prospects look bleak. So, we think it is best avoided now.
How Does Green Plains (GPRE) Stack Up Against its Peers?
While GPRE has an overall POWR Rating of D, one could check out these other B-rated (Buy) stocks within the Agriculture industry: Golden Agri-Resources Ltd (GARPY) and CF Industries Holdings, Inc. (CF).
GPRE shares were unchanged in premarket trading Tuesday. Year-to-date, GPRE has declined -22.53%, versus a -8.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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