Governments worldwide are lending growing importance to green energy initiatives due to climate concerns. As a result, the alternative fuel sector has been gaining traction. The Biden administration’s ‘Build Back Better’ plan has at least $500 billion earmarked to tackle the climate crisis. The President is also taking active steps to restore the National Environment Policy Act, which calls for federal evaluation of the environmental impacts of infrastructure projects.
The International Energy Agency (EIA) has urged governments to promote the consumption of alternative fuels in long-distance transport, such as in aviation and shipping, ahead of the international climate summit. Analysts expect alternative fuel sales to have a 25% market share by 2030.
As the drive toward a cleaner future gains steam, we think investing in alternative fuel stocks Methanex Corporation (MEOH) and REX American Resources Corporation (REX) could be rewarding.
Methanex Corporation (MEOH)
MEOH is a Vancouver, Canada-based methanol supplier with production sites in Canada, Chile, Egypt, New Zealand, Trinidad and Tobago, and the United States. Methanol is a clean-burning and biodegradable alternative fuel.
On July 15, MEOH announced a strategic partnership with Japanese shipping company Mitsui O.S.K. Lines, Ltd. (MOL) regarding purchasing and selling an equity position involving MEOH’s Waterfront Shipping (WFS) subsidiary. The parties in the agreement expect to expand the commercialization of methanol as a marine fuel that can reduce sulfur oxide, particulate matter, and nitrogen oxide emissions and reduce CO2 emissions by 15% during combustion. Complementing this agreement, on July 16, MEOH declared the recommencement of the construction of its Geismar 3 project, which could be beneficial, given the methanol industry's positive outlook.
In its fiscal second quarter ended June 30, MEOH’s adjusted revenue increased 106.8% year-over-year to $937 million. Its adjusted net income came in at $95 million, while its adjusted net income per common share stood at $1.24, both registering a substantial increase from their negative year-ago values. Its adjusted EBITDA improved 718.8% from the same period last year to $262 million.
A $1.20 consensus EPS estimate for the current quarter (ending December 2021) indicates a 700% year-over-year increase. Likewise, the $998.87 million consensus revenue estimate for the current quarter reflects a 23.1% rise from the prior-year quarter.
The stock has gained 63.8% in price over the past year and 36.3% over the past six months to close yesterday’s trading session at $47.71.
MEOH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MEOH has a B grade for Growth, Momentum, and Quality. In the 93-stock, A-rated Chemicals industry, it is ranked #28. Click here to see the additional POWR Ratings for MEOH (Value, Stability, and Sentiment).
REX American Resources Corporation (REX)
REX and its subsidiaries produce and sell alternative fuel ethanol, distillers’ grains, and non-food grade corn oil. The Dayton, Ohio, company operates in the Ethanol and By-Products, and Refined Coal segments. It has two majority-owned plants and four minority-owned operations, all located in corn-belt areas.
The company is committed to preserving and protecting the environment by lowering greenhouse gases and achieving net-zero status for its plants. REX subsidiary One Earth Energy is currently working with the University of Illinois on a carbon sequestration project evaluation to reduce CO2 in the atmosphere.
For its fiscal second quarter, ended July 31, its net sales and revenue increased 398% year-over-year to $195.84 million. This can be attributed to a 398.6% rise in ethanol and by-products sales from the prior-year quarter to $195.68 million. Its net income attributable to REX common shareholders and net income per share came in at $7.88 million and $1.31, respectively, up substantially from their negative year-ago values.
The Street’s $2.29 EPS estimate for the next quarter (ending January 2022) indicates a 288.1% year-over-year improvement. Likewise, the Street’s $183 million revenue estimate for the coming quarter reflects a 45.2% rise from the prior-year quarter. Furthermore, REX has an impressive earnings surprise history; it has topped consensus EPS estimates in each of the trailing four quarters.
REX’s stock has gained 15.8% in price over the past year to close yesterday’s trading session at $85.98. It has gained 17% year-to-date.
It’s no surprise that REX has an overall B rating which translates to Buy in our POWR Ratings system. REX has a Sentiment grade of A, and a Value, Momentum, and Quality grade of B. It is ranked #4 out of the 43 stocks in the Energy – Services industry.
To see the additional POWR Ratings for Growth and Stability for REX, click here.
MEOH shares were unchanged in after-hours trading Thursday. Year-to-date, MEOH has gained 1.39%, versus a 22.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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