- GEVO stock just got a major endorsement from a top analyst.
- The price target might seem optimistic, but high-dollar deals indicate that Gevo deserves a re-rating on Wall Street.
- Investors should hold a few shares today in anticipation of an eventual bull run.
Colorado-based Gevo (NASDAQ:GEVO) is a renewables-sector company with a focus on drop-in gasoline and other hydrocarbons with net-zero greenhouse gas emissions. GEVO stock is, most likely, headed for significantly higher prices this year.
The time is right to consider an investment in Gevo and in renewable energy companies. As InvestorPlace contributor Stavros Georgiadis pointed out, Gevo “has been given a huge potential business opportunity by the U.S. government, with the $1.2 trillion infrastructure bill and a clean energy bill under consideration worth $550 billion.”
Georgiadis’ point is duly noted, but is Gevo the right sustainable-fuel business to pour your investment capital into? At least one Wall Street expert seems to believe so and is setting his sights on an eye-opening price objective.
What’s Happening with GEVO Stock?
With a stubborn resistance level at $8, there is no denying that GEVO stock has frustrated some of its long-term shareholders. Recently, the stock was hanging around the $5 area. In 2017, however, it traded at $10 and even higher than that. Could a rebound to the double digits be in the cards?
The answer is probably yes, if we are to believe H.C. Wainwright analyst Amit Dayal. Citing Gevo’s potentially lucrative strategic alliance with Axens aimed at commercializing sustainable ethanol-to-jet projects, Dayal issued a “buy” rating on the stock along with an $18 price target.
Now, $18 might sound too optimistic. Sure, the alliance with Axens is great news for Gevo, but just getting the share price to $10 will be a challenge, not to mention $18.
Granted, the company’s per-share net earnings loss shrank from 15 cents in 2020’s fourth quarter to 8 cents in the fourth quarter of 2021. Thus, it is fair to say that Gevo’s bottom-line financials are improving.
Still, Dayal’s price objective will probably require Gevo to generate robust revenue. Where will that revenue come from?
Two Huge Deals
The answer to that question isn’t hard to find. For one thing, Gevo just inked a contract with oneworld Alliance, a network of large airlines.
According to the press release, certain members of the alliance intend to purchase up to 200 million gallons per year of sustainable aviation fuel from Gevo. Furthermore, the delivery of that fuel is expected to commence in 2027 for a five-year contract term.
Gevo estimates that the fuel-sales agreement “should generate approximately $800 million of revenue.” And if you think that is a big number, you’d better put your seat belt on.
In an even bigger deal, Gevo signed an agreement with Delta Air Lines (NYSE:DAL) to supply 75 million gallons of sustainable aviation fuel per year over a term of seven years. This arrangement, according to Gevo’s estimate, “should generate approximately $2.8 billion of revenue” throughout the seven-year term.
Gevo Chief Executive Officer Patrick R. Gruber was, understandably, effusive with praise for its mega-scale client, saying:
“‘Delta makes for a great customer, recognizing that big change is needed. I also appreciate their faith in what we are doing at Gevo. Net-zero jet fuels matter.'”
What You Can do With GEVO Stock Now
Gevo’s big-ticket agreements should generate not millions, but billions of revenue dollars for the company over the coming years.
In light of this, Dayal’s $18 price target for GEVO stock isn’t unrealistic, though it might not happen this year. Therefore, investors can buy a few shares while they’re still relatively cheap and plan to stay in the trade for a while.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.