Why Green Plains' Business Diversification Has Bank Of America Bullish

Substantial diversification and opportunities for higher-margin business lines have turned Bank of America bullish on Green Plains Inc GPRE.

The Green Plains Analyst: Luke Washer initiated the firm’s coverage of Green Plains with a Buy rating, setting a $45 price target.

The Green Plains Takeaways: Green Plains is in the midst of a “significant transformation,” diversifying from primarily ethanol production to include production of high-protein, oil and clean sugar products servicing the food, beverage, livestock, and aquaculture industries, said Washer in a Thursday note.

This diversification of business lines makes the company far less vulnerable to shifts in EPA policy, which governs the ethanol industry in the U.S., said the analyst. 

The shift will substantially contribute to EBITDA growth, increasing EBITDA with a 100% CAGR from $39 million in 2020 to $350 million in 2023, according to the note.

The high-protein products, specifically, offer significant upside in revenue and margins, said Washer. Green Plains’ recent acquisition of FluidQuip enabled the company to leverage FluidQuip’s Maximized Stillage Co-Products (MSC) technology, which is capable of turning what would be 15.2 lbs of traditional distillers’ dried grains (DDG) into 3.5 lbs of high-protein (50% protein) DDG and 11.3 of traditional DDG, said the analyst.

This is beneficial because high-protein DDG sells for roughly 2.2 to 2.8 times the price of traditional DDG, said Washer. The company intends to sell the high-protein product in the pet-food and aquaculture industries, he said.

Another business line, corn oil has the potential to grow due to its low carbon composition, making it an ideal candidate for carbon-limiting efforts in the diesel industry, said Washer.

Since Green Plains operates in a CO2 emissions heavy business, environmental policy poses risks; however, the company has entered an agreement to capture and transport CO2 to Summit Carbon Solutions, which could add nearly $100 million in run-rate EBITDA to the company’s income statement, said Washer.

GPRE Price Action: Green Plains shares were up 6.49% to $32.83 at last check Thursday.

Related Link: Recap: Green Plains Q1 Earnings