Renewable Energy Group Third Quarter GuidanceRenewable Energy Group (REGI) is a renewable biodiesel that is selling for less than 10x its earnings and 0.8x its book value. I personally own shares in the company that I purchased last week. The company is profitable and has been producing a positive cash flow the last 10 years. Renewable shares fell today after reporting its third quarter guidance. This has created an opportunity for me and other investors to invest in a profitable renewable energy company selling for less than its estimated business value.
I wrote an article about Renewable Energy Group not that long ago. For those of you who haven't read it I'll go through the basics of the company.
On Wednesday Renewable revised its third quarter guidance. The company revised how much the company is going to lose in the third quarter. The company now expects to report a net loss of $9 million to $15 million. Renewable is also expecting that its none GAAP adjusted EBITDA to between negative $7 million to $13 million for the third quarter. This is far below what the company was expecting. It was expecting EBITDA to be between $0 and $10 million, not in the negative.
The company's CEO and President Daniel J. Oh discuss why its guidance was lowered in a statement to shareholders.
"Throughout the quarter, we experienced a volatile commodity environment coupled with a significant decline in RIN prices.” He went on to say, “Feedstock prices did not decline as significantly as energy prices and RINs during the quarter, mainly due to continued high industry production levels in anticipation of a retroactive reinstatement of the federal biodiesel mixture excise tax credit.”
Renewable is dependent on the Federal biodiesel tax credit which has a large impact on its earnings. When the federal biodiesel tax credit is retroactively reinstate will result in $35 to $40 million net benefit for the third quarter. This is a good thing and a bad thing at the same time. The company needs this tax credit to produce a profit. On the other hand, the company has been around for nearly 20 years and operates a high intergraded system that produces 100 million of gallon of biodiesel. Renewable has the largest market share of the biodiesel segment which grants the company some pricing power.
The Federal Government always renews the biodiesel tax credit. Investors fears that the federal government won't renew the credit is over blown. I believe that their third quarter earnings, which will come out on November 5th, will create a great opportunity for investors to invest in the company. The company is undervalued at its current price and is offering an earnings yield of 10%.
Published on Oct 21, 2015By Cody Eustice
Posted in ...Market Commentary