Renewable Energy Group (NASDAQ:REGI) has been the largest producer of biodiesel energy in
the country since 2011.
The company’s
operations range from acquiring feedstock to distribution of the final product.
Renewable Energy regards itself as a “low cost” biodiesel producer: typically
corn oil and animal fat.
Although the EPA expects 2014
biofuel production to fall, investors should not automatically discount these producers.
Wedbush, for example, believes the drop in demand is already priced into shares
of Renewable Energy.
Financials
Year over year,
revenue is up 41.7 percent for the most recent quarter, ended September 30th.
Correspondingly, earnings jumped from a $6 million loss to an $87 million gain.
A key place where the company made money is cost of goods sold, which fell from
98.5 percent to 86.9 percent year over year. In addition, SGA expenses rose
just three million dollars on a $135 million upswing in revenue.
On a yearly basis, revenue is
up 23.2 percent from 2011 to 2012, and 669 percent over the past five years. As
strong as this revenue figure looks,incomefell from $89 million to $19 million from 2011 to 2012, as cost of
goods sold spiked higher. The cost increase can be largely credited to higher
biodiesel production increasing raw material demand.
Pilot Travel Centers made up 36
percent of 2012 revenue and 23 percent of 2011 revenue. The loss of this
customer would be very detrimental. Contracts are typically for a one-year
period, with the current contract set to expire at the end of 2013. The annual
report gives no indication as to the status of the relationship with Pilot.
Investors should
also be aware that government subsidies and EPA statements can have a huge
impact on the bottom line.
Competitive Outlook
One of the company’s key
competitive advantages is its low cost. Because inputs for production are
flexible, Renewable Energy is able to easily respond tochangesin price.
In
their annual report, the company cites Archer Daniels
Midland (NYSE: ADM), Cargill, Louis Dreyfus, and Ag
Processings as key production competitors. Of course, biodiesel producers
are also in competition with traditional fossil fuels, namely oil, which is
down roughly 10 percent since August highs. A key advantage biodiesel producers
have on fossil fuels are global government subsidies.
Insiders and Institutions
Over the course of
the year, a company director has been engaged in aggressive selling, especially
this summer when shares were around the 15 dollar level. Conversely, the CEO
and CFO purchased small lots for roughly $13 in August.
Institutions have loved the
stock, increasing their ownership more than 46 percent last quarter, and almost
26.7 percent this quarter. Mutual funds have followed a similar pattern, adding
more than a 30 percent stake for each of the past two quarters.
Up almost 100 percent this year, shares are down 25
percent over the past three quarters and are currently trading at $11.77.
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