Investors are first and foremost after returns, although it is safe to assume most do not expect their investments to more than quadruple during a few sessions only. That, however, was the fortune bestowed on Vertex Energy (VTNR) shareholders toward the end of last week.
Between Wednesday’s close and trotting off to the weekend on Friday, shares soared by 339%. But, if you think you’ve missed the boat, do not fret. According to H.C. Wainwright’s Amit Dayal, there’s a way to go still.
Dayal reiterated a Buy on VTNR stock and increased the price target from $4 to $25. Even after last week’s mighty share haul, there’s upside of 220% from current levels. (To watch Dayal’s track record, click here)
So, what’s all the hoopla about? Well, Vertex has agreed to purchase Shell’s Mobile, Alabama, refinery for $75 million. The deal is expected to close by 4Q21.
The company has said it intends to invest $85 million in converting the facility’s hydrocracking unit to produce renewable diesel. This should be done by the end of next year, and by 2023 the move is expected to generate revenue of $3 billion and gross profit of $400 million.
The deal, says Dayal, is nothing less than “transformational.”
“We believe this transaction positions Vertex as a unique energy transition play where investors could reap the benefits of favorable regulatory drivers supporting the growth in demand for renewable diesel, while also benefiting from price stability (and potential improvements), in our opinion, from artificial supply constraints being imposed by the same regulations on conventional energy products,” the 5-star analyst opined.
What’s more, bringing its renewable diesel to market according to the “execution timeline,” could see the company zoom ahead of most of the competition by 2-3 years, “at significantly lower capex.” This will potentially enable the company to “harvest above average margins” for the same period.
Dayal thinks the Street has mostly overlooked Vertex’ various assets and cash flow generation ability, but says the deal should make the company “hard to ignore going forward.”
The last remark is telling, as currently only one other analyst is following Vertex’ progress. While their rating is also a Buy, their model has not to been altered following the deal’s announcement. As such, Vertex currently has a Moderate Buy consensus rating, backed by a $13.5 average price target. Nevertheless, going by this figure, the shares are still anticipated to add 73% of muscle over the next 12 months. (See Vertex stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
