Gevo, Inc’s recently-announced letter of intent (LOI) with a subsidiary of Chevron Corporation to jointly invest in building and operating one or more new facilities that would process inedible corn to produce sustainable aviation fuel is a “game changer,” according to the analysts at Noble Capital Markets.
In a note to clients on September 10, the Noble analysts said the potential for renewable fuels “remains very high.”
“Not only does the addition of a major integrated oil company as a partner and investor validate the renewable fuels concept, visibility improves on the funding and off-take fronts,” the analysts added.
They noted that the LOI is subject to finalizing terms of a co-investment agreement and signing a fuel supply agreement (FSA) by May 31, 2022. Chevron will also receive 15 million Gevo warrants with a minimum strike price of $8.50 per share.
READ: Gevo, and Chevron unit sign letter of intent to jointly invest in new facilities to turn inedible corn into sustainable aviation fuel
The Noble Capital analysts said Gevo is well funded with its 2Q 2021 cash of $567 million and the warrants issued to Chevron could generate an additional $127.5 million of cash.
The analysts maintained their ‘Outperform’ rating and price target of $16 per share on Gevo stock, noting that progress on the company’s renewable natural gas (RNG) and Net Zero One plants is “positive.”
“We remain positive on the stock’s high risk/high reward profile despite the 37%-plus move yesterday since 1Q 2021 capital raises improved the funding fairway and the co-invest and FSA LOI bolsters the development plan,” they concluded.
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