On Monday, Truist Securities revised its stock price target for REX American Resources (NASDAQ:AREC) (NYSE:REX), a leading ethanol producer, dropping it to $55 from the previous $60. Despite this adjustment, the firm maintains a positive outlook on the company's stock with a Buy rating.
Currently trading at $41.71, near its 52-week low of $39.39, InvestingPro analysis suggests the stock is undervalued, making it an interesting prospect for value investors.
The adjustment comes in the wake of REX American's recent performance, which the analyst noted as solid in terms of profitability and free cash flow (FCF) generation. Supporting this view, InvestingPro data shows the company maintains excellent financial health with a current ratio of 9.93 and minimal debt-to-equity of 0.04.
The company has been actively progressing with its One Earth CCUS project, which is largely under its control. The change in the price target is attributed to the uncertainty surrounding the 45z guidance amid the forthcoming change in administration, which has prompted a more conservative valuation.
REX American has demonstrated resilience and a strong financial foundation, according to the analyst's comments. The firm has expressed confidence in the management's ability to navigate potential policy changes while sustaining the company's robust financial health.
Financial projections have been updated to reflect the company's recent performance and the revised outlook. The forecast for fiscal year 2024 estimates an increase in revenues to $638 million, up from the prior $627 million.
Moreover, the 2024 EBITDA (earnings before interest, taxes, depreciation, and amortization) projection has been raised to $94 million from the earlier $85 million, primarily due to the company's overall beat in the third quarter.
Looking further ahead, the fiscal year 2025 EBITDA forecast remains relatively stable at $90 million compared to the previous $88 million. However, the revenue projection for the same period has been adjusted downward to $701 million from $712 million due to pricing adjustments. These revised figures reflect the analyst's current expectations for REX American Resources' financial trajectory.
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In other recent news, REX American Resources has reported strong results for Q3 2024, marking the company's second most profitable quarter in its history. The company showed a significant improvement in net income per share and maintained a strong cash position with no bank debt, despite a decrease in average ethanol selling prices.
Net income per share increased by 97% compared to Q2 2024, and the company ended the quarter with $365.1 million in cash.
REX American Resources is focusing on expanding its ethanol production capacity and is currently increasing its One Earth Energy facility's capacity from 155 million to 175 million gallons per year.
The company is also nearing the completion of its carbon capture and compression project, which positions it well for future sustainable aviation fuel and carbon sequestration opportunities. The company is awaiting EPA Class 6 permit approval, anticipated by July 2025, which is critical for its carbon capture initiatives.
During the earnings call, analysts inquired about the potential impact of policy changes on the 45Z tax credits. The company confirmed its commitment to the carbon capture project regardless of policy shifts. Executives also discussed opportunities for cash deployment, which could include possible share buybacks and acquisitions. These are among the recent developments for REX American Resources.
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