Today, a very substantial agreement with Delta Air Lines (NYSE:DAL) is sending renewable fuel company Gevo (NASDAQ:GEVO) higher. Currently, GEVO stock is up approximately 2% off of yesterday’s close. However, in earlier trading today, this company surged nearly 20% at its intraday high.
This rather violent move is one that’s worth diving into. After all, a 20% swing in both directions on a given day isn’t your typical price action for any stock.
For Gevo, it’s been a rather rocky year. Over the past year, shares of GEVO stock have declined nearly 50%. Much of this had to do with capital re-allocation to fossil fuel companies and other energy providers. Sustainability is an important long-term secular trend many investors are watching closely. However, given where energy prices are now, capital appears to be chasing the higher relative returns that “dirty” energy companies can provide.
With all that said, there is tremendous interest in Gevo among sustainability-focused investors. The company’s renewable natural gas and other refined fuels (gasoline, jet fuel and diesel) are an important part of many companies’ transitions toward a more sustainable future. On this front, Gevo’s announcement today is very important.
With that said, let’s dive into the details of Gevo’s agreement with Delta today.
What’s Taking GEVO Stock Higher Today?
Today, Gevo announced the company has signed a major agreement with Delta Air Lines (NYSE:DAL). This agreement is a rather large one, as Gevo has agreed to supply 75 million gallons of sustainable aviation fuel to Delta over the course of seven years.
In total, this agreement is worth approximately $2.8 billion over the life of the agreement. Additionally, this contract is in the form of “take-or-pay,” meaning Gevo’s cash flows are secured, whether Delta takes the fuel or not.
For investors, there’s a lot to like about how this agreement is structured. This deal provides Gevo with protections and revenue stability. As the company continues to ramp up its production of renewable fuels, this could provide a solid base for additional higher-margin sales to other customers. Accordingly, investors have a lot to be excited about.
It’s also worth noting that this new agreement replaces an existing contract between the two parties. Delta had previously agreed to buy 10 million gallons of sustainable aviation fuel from Gevo. Accordingly, investors have rightly begun to price in the effect of this new deal on Gevo’s future cash-flow prospects. Right now, the company’s potential is certainly on the up and up.
On the date of publication, Chris MacDonald 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.
