REGI And The Dangers Of Making Regulatory Assumptions
Good article at Seeking Alpha do a search for the link.
REGI investors (myself included) have endured a painful lesson in the dangers of assuming that government regulators will always behave in a rational manner that supports their organization's goals. Two recent actions by the EPA, the first being its August announcement that it will account for the ethanol blend wall in determining the RFS2's 2014 volumetric mandates and the second being the leak of its proposed rule reducing those mandates, have thrown the biofuel industry into unexpected turmoil.
While a final rule has yet to be released (and the proposed rule has yet to be formally published), the changes revealed in the leaked document would substantially reduce the estimated earnings of REGI in FY 2014 if finalized. I am therefore reducing my REGI price target for the end of 2014 down to $15.68 under the assumption that the final rule closely resembles the proposed rule, although I should note that this target has substantial upside potential on the possibility that the volumetric reductions contained in the EPA's final rule are not as severe as currently expected. I have added to my long position in REGI at today's prices.
I think that one key metric that is ignored, especially after 2012, is that REGI actively manages RINs for stable pricing. What remains unknown is did they see this coming?
As a premier producer, I would say that they keep a closer eye on the EPA / government than waiting to read the final outcome in the local paper. So with increased output and lower costs coming over this year, they can be ahead of the disaster projections for earnings that are being imagined. The only thing I worry about is that they are TOO conservative (play dumb) (a trait they do well) on the CC that allows for even more doubt / fear. One thing though, I wouldn't take any questions from Steiffel Nick.