Gevo bulls come to the company’s defense

| September 27, 2012

As Gevo’s stock gets hammered after news of scale-up problems emerged at its first commercial isobutanol plant, Gevo bulls among the analysts issue “buy” recommendations.

Why buy, why now? The Digest relates the tale.

In Colorado, as the company took what energy analyst Pavel Molchanov referred to as a “Shellacking,” after news of scale-up problems at the Luverne plant and downgrades from Cowen & Co and UBS caused Gevo shares to plunge 35% yesterday, both Raymond James and Piper Jaffray upgraded the stock, and highlighted it as a buy after shares fell to $1.84 at yesterday’s close.

Raymond James says Gevo will “outperform” the market

“In the context of yesterday’s selloff and an additional competitor downgrade this morning,” wrote Molchanov, “we are reaffirming our positive stance on the stock and initiating 2014 estimates. The selloff, as exasperating as it is for long-term shareholders, needs to be seen in the context of a jittery, hyper risk-averse, short-term fixated market, with a tendency to “sell first and ask questions later” after even the slightest imperfections in company performance.

“Quite simply, we think the market egregiously overreacted, and we strongly encourage investors with a 12+ month time horizon to view this as a buying opportunity. We reiterate our Outperform rating — we think the current entry point is excellent for investors willing to look beyond the short-term volatility.”

Piper Jaffray says “Overweight” the stock

“While management did not specifically identify the production issue, we believe contamination is playing a more significant role than they had originally expected,” wrote Ritzenthaler. “The biologists are working to improve the production strain and fermentation parameters to enable better control of competing reactions, a process that in our experience will take a handful of months at most to optimize. The switch to ethanol does not reflect any change in strategy – management is electing to operate the facility rather than conduct the strain improvement at such a large-scale.

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