REX American Resources – American as Apple Pie
Companies like Westport Innovations (WPRT) and Darling International (DAR) can help diversify your portfolio into other alternative energy concepts, but they lack the immediate profitability of sales at the consumer level available to us through ethanol today. And in ethanol, the best choice in the good old USA is REX American Resources (REX). This small, innovative leader is poised to take over its weaker competitors as the drought looms over them and expert capital allocator, Stuart Rose, CEO, deploys his company’s cash arsenal to shareholders’ advantage. He boasts 11.2% RoE since 1993 and 24% return on ethanol investments in FY 2011. Mr. Rose stands prepared to buy out his competitors as they fail, if their equipment meets his high standards. And his Board has authorized share repurchases. Both of these uses of cash strike me as good creators of shareholder value.
Good reasons to own this company abound. In the most recent conference call Mr. Rose revealed that Rex American Resources is prepared for the crush spread to remain at its current levels for months to come. Rex is the only ethanol company in the country to have remained in positive earnings territory this FY. That’s what I expect from the leader in the industry. Fagen, Inc., the most efficient green energy design builder in the country, designs all of the ethanol plants Rex owns out right or in part. They have repurchased 12% of outstanding shares to date with prices hovering around where they are today, $18.00. With 8.3 Million shares outstanding, the book value of each share is currently $30.41/share and good ole Mr. Market has them irrationally priced at around $18. Insider ownership stands at 33%. These are just a few of the good reasons to own this company.
Leadership – Stuart Rose was at the helm of a home electronics company and realized that there was a better market in ethanol. So he and his board began shutting down that old business and began the new Rex American Resources (REX). To date, there are some warranties for those old televisions they sold that they still intend to honor, but that and some real estate are all that remain from the old business. If you go to the CAPS page on Fool.com dedicated to Rex, you’ll see that they are not up to date with this company - It still describes the old Rex.
Part of what made Rose jump at the opportunity to take a leadership role in the American ethanol market, is the federal mandate that requires a certain amount of our gasoline to have ethanol in it. The mandate increases up to 2015 and then levels off at 15Billion gallons/ year. As the leader in this market niche, Rex produces through its subsidiaries 709Million gallons/ year and is therefore in the position to benefit more than other American companies from this incentive. However, should there be a reversal of this requirement, there is still a substantial market for ethanol with the same companies Rex supplies today. With Federal emissions standards as they are and as they will be in the future, the use of ethanol is the only way we can meet those requirements for the bulk of our population right now and for at least a few more years. We are still many years out from profitable consumer-level alternative fuel options.
Want to know more? Go directly to Rex American Resources website and check out the investor relations presentation and all of their quarterly and annual reports. This is a super well-run company, but don’t trust the information available on Fool.com’s REX CAPS page. The fool still has the description of the old company on there and predictions of loss per share in the neighborhood of -$1.83 / share for 2014. Seeing this on the CAPS page prompted me to look elsewhere and I found it listed as -$1.10/share for FY 2014 on another site. So the Fool isn’t the only one who is out of touch with this company and this stock.
This morning, I listened to the most recent conference call and had such a positive outlook from the discussion, it prompted me to call and speak with the CFO, Doug Bruggeman. He explained that Rex does not put out guidance that far in advance and that they did not have any big events coming that could justify such a drop in EPS. They closed down a plant last year and I asked if anything like that was likely and he said no.
I like that the leadership at Rex eats their own cooking right beside me. I own shares of Rex American Resources and look forward to building out a more substantial position over the coming months as I buy side by side with the company itself, while they look to acquire up to another 500,000 of their own shares. I also own shares of Westport Innovations (WPRT) and am contemplating purchasing some shares of Darling International (DAR). I still need to do more due diligence on DAR and I’ll let you know if there is anything I think you need to know. I love the fool and the benefits that investors bring to investors on these pages. I hope this helps more individual investors make wise choices and encourages deeper due diligence.