Is Gevo (GEVO) Stock Outpacing Its Oils-Energy Peers This Year?

Diversified Energy Company Plc DEC is slated to report third-quarter 2024 results on Nov. 12, before market open.

See the Zacks Earnings Calendar to stay ahead of market-making news.

The Zacks Consensus Estimate for revenues is pegged at $258.5 million, while that for earnings is pinned at 30 cents per share. The bottom-line estimate has moved down 48.3% in the past 60 days.

Earnings Whisper for DEC

Our proven model does not predict an earnings beat for Diversified Energy this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

DEC has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of 0.00% at present.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Shaping DEC’s Upcoming Q3 Results

In August 2024, the company completed the acquisition of certain upstream assets and related infrastructure in the East Texas area of the Central Region from Crescent Pass Energy. Positive synergies from this buyout, along with that of the OakTree acquisition completed earlier, might have contributed favorably to Diversified Energy’s operating results in the third quarter.

However, lower average daily production volume, primarily that of natural gas, might have adversely impacted the company’s revenues, which should be reflected in the upcoming results.

Nevertheless, higher daily production volume and an increased average realized sales price of natural gas liquid (NGL) and oil can be expected to have boosted DEC’s overall top-line performance.

Moreover, the company’s disciplined and consistent hedge program is likely to have improved its operating margin. This must have contributed favorably to its bottom-line performance, outweighing the challenging commodity price environment it has been facing lately.

However, higher employees, administrative costs and professional services owing to investments made in staff and systems and costs related to services required for DEC’s listing on two stock exchanges are likely to have pushed up its general and administrative expenses. This, in turn, might have adversely impacted its overall earnings.

Price Performance & Valuation

While the aforementioned factors may send mixed impulses, a detailed analysis of its year-to-date price performance and the stock’s valuation should help one make a more informed decision.

Diversified Energy shares have lost 12.4% in the year-to-date period, underperforming the Zacks Alternative-Energy industry’s surge of 45.9% and the broader Zacks Oils-Energy sector’s growth of 5.9%. It has also lagged the S&P 500’s return of 24.8%.

On the contrary, other industry players, such as Talen Energy Corporation TLN, Constellation Energy Corporation CEG and GE Vernova Inc. GEVO, have delivered stellar performances. TLN, CEG and GEVO’s shares have surged 222.1%, 107.4% and 6.38%, respectively, year to date.

Regarding valuation, DEC’s forward 12-month price-to-earnings (P/E) is 12.69X, a discount to its peer group’s average of 23.94X. This suggests that investors will be paying a lower price than the company's expected earnings growth compared to that of its peers.

Investment Thesis

With the global energy transition underway, there has been a rapid shift in consumers’ preference from fossil fuel to renewable energy, a process that has been impacting the demand of natural gas worldwide. This might have been the reason behind DEC registering a 17.6% year-over-year plunge in its total revenues (including settled hedges) during the first half of 2024. The production volume declined formidably in the same period.

DEC’s financial position does not seem to be very strong at the moment. As of June 30, 2024, the company’s net debt, worth $1.65 billion, increased year over year, while its cash and cash equivalent of $0.03 billion remained quite insignificant compared to the former.

Looking ahead, as industries across the board rapidly adopt renewables as their preferred energy source, the significance of natural gas may diminish considerably over the next few years. With DEC’s portfolio heavily inclined toward natural gas and its unimpressive financial position, the company’s growth opportunities might remain restricted.

Final Thoughts

To summarize, Diversified Energy is likely to disappoint with its third-quarter results, considering the recent downward revision in its earnings estimates, unfavorable Zacks Rank and an unimpressive Earnings ESP.

Also, considering its dismal price performance so far this year and doubtful long-term growth prospects, investors interested in DEC stock should wait until next Tuesday.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Gevo, Inc. (GEVO) came out with a quarterly loss of $0.09 per share versus the Zacks Consensus Estimate of a loss of $0.10. This compares to loss of $0.07 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 10%. A quarter ago, it was expected that this company would post a loss of $0.09 per share when it actually produced a loss of $0.09, delivering no surprise.

Over the last four quarters, the company has surpassed consensus EPS estimates just once.

Gevo, which belongs to the Zacks Alternative Energy - Other industry, posted revenues of $1.97 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 67.68%. This compares to year-ago revenues of $4.53 million. The company has topped consensus revenue estimates two times over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

Gevo shares have added about 48.3% since the beginning of the year versus the S&P 500's gain of 24.3%.

What's Next for Gevo?

While Gevo has outperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Gevo: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is -$0.10 on $5.92 million in revenues for the coming quarter and -$0.36 on $21.25 million in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Alternative Energy - Other is currently in the bottom 35% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Another stock from the same industry, Altus Power, Inc. (AMPS), has yet to report results for the quarter ended September 2024. The results are expected to be released on November 12.

This company is expected to post quarterly earnings of $0.03 per share in its upcoming report, which represents no change from the year-ago quarter. The consensus EPS estimate for the quarter has been revised 5.9% higher over the last 30 days to the current level.

Altus Power, Inc.'s revenues are expected to be $58.24 million, up 29.2% from the year-ago quarter.

Zacks Investment Research