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By Rayk Riechmann
It’s time investors consider harvesting a new generation of profits from the vast American Corn Belt.
Rex American Resources Corp. (NYSE: REX), a leading ethanol manufacturer with a stronghold in the U.S. Midwest, may soon reap the benefits of two major investment initiatives. First, the construction of its first carbon capture and storage (CCS) facility is substantially complete and final permits are expected to roll in this year. Second, the company has invested $50.2 million as of its fiscal third quarter of 2024 in the expansion of its biggest production facility, One Earth Energy. With a fully cash-funded investment budget of $165- $175 million, a fraction of cash on hand, a deliberate growth strategy is combined with financial prudence.
Rex’s CCS project cements a pivot towards increased sustainability and opens the door for future growth opportunities. The CCS facility is designed to capture 560,000 tons of CO2 from REX’s operations annually, positioning the company to benefit from a higher perceived product quality and new markets, such as sustainable aviation fuel. Additionally, the combined storage capacity of the whole facility is 90 million tons, well exceeding the internal storage needs. As a result, Rex can offer carbon emission storage to third party companies for a fee, creating a new revenue stream driven by strong secular tailwinds. Combined with an extension of Rex’s production capacity at its flagship facility — from 150 million gallons to 175 million by mid-2025 and an extension to 200 million annually, without further capital expenditure — more top-line growth should be on the way.
Based on valuation metrics, there’s significant upside potential from current levels, marking an attractive entry point for growth and value investors alike. Institutional investors already taken notice, raising their stakes in REX throughout 2024. Rex is trading at NTM EV/EBITDA multiple that’s 59% below the industry average, with a bulletproof balance sheet. This valuation gap has a strong chance to narrow in 2025 as expanded capacity comes online and its CCS project moves towards the finish line. Recent transactions of comparable companies in the CCS/Ethanol space further indicate a serious undervaluation.
With a conservative balance sheet, new growth efforts in motion and an attractive valuation, Rex remains — for now — an undiscovered play on renewable energy and CCS.
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