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UPDATE: Cowen Starts Pacific Ethanol (PEIX) at Outperform; Strong Balance Sheet, Expansion Potential Paint Interesting Picture

September 12, 2014 6:48 AM EDT
Get Alerts PEIX Hot Sheet
Price: $6.78 --0%

Rating Summary:
    5 Buy, 1 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 20 | Down: 14 | New: 22
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(Updated - September 12, 2014 9:30 AM EDT)

Cowen initiated coverage on Pacific Ethanol (NASDAQ: PEIX) with an Outperform rating and a price target of $29.

UPDATE -

Analyst Jeffrey Osborne commented: We see the location of its plants as a strategic weapon enabling higher margins, given elevated rail costs from the Midwest. The company has 200 mn gallons of annual ethanol production capacity and also produces wet distillers' grain (WDG) for animal feed and corn oil as co-products. The bulk of ethanol production and its co-products are sold near its facilities. The company's destination model allows for reduced transportation costs versus Midwest peers, and a lower carbon footprint.

Now that management has delevered the company and emerged from the brink of potential bankruptcy over the past 12-18 months, the team is evaluating small capex projects to enhance plant assets and drive greater profitability per gallon (more corn oil recovery, carbon capture, higher yields, and others). We are impressed with their efforts to diversify feedstocks, which should drive more profit per gallon and enable higher levels of government support through RIN generation. What is key is management can implement these changes into existing capacity and is not looking to build new plants. Distillers' grain pricing has been under pressure due to lack of Chinese imports and robust harvest expectations. We see this trend continuing through the year, but see ethanol margins holding up well.

While undertaking growth initiatives leveraging existing assets, we expect management to continue to leverage strong cash flow dynamics in the current ethanol environment and refinance and/or repay down legacy debt. All parent company debt has been eliminated thus far and plant term debt stands at about $17 million. As of June 2014, the company had $52 million in cash on hand and is poised to generate an additional $17 million in free cash flow for the remainder of the year, based on our expectations.

For an analyst ratings summary and ratings history on Pacific Ethanol click here. For more ratings news on Pacific Ethanol click here.

Pacific Ethanol closed at $21.31 yesterday.



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