On Monday, Vertex Energy (NASDAQ:VTNR) shares saw its price target lowered by a Stifel analyst from $4.00 to $1.50, while the firm maintained a Hold rating on the stock. The decision comes after Vertex (NASDAQ:VRTX) Energy announced it would halt its renewable diesel production and revert its hydrocracker unit to produce conventional finished products.
The analyst from Stifel noted that the shift in production strategy removes the risk associated with renewable diesel (RD), but positions Vertex Energy as a small independent conventional refinery. This change subjects the company to the historically volatile crack spreads.
The gross margin for conventional fuel has seen significant fluctuations, with a low of $4.79 per barrel in the fourth quarter of 2023 and a high of $24.06 per barrel in the second quarter of 2022, averaging $15.08 per barrel.
In the first quarter of 2024, the conventional fuel gross margin averaged $12.63 per barrel. However, the spreads have contracted by 25% in the second quarter of 2024.
The revised price target of $1.50 is based on the assumption that the fuel gross margin will dip in the second quarter of 2024 but will gradually increase in the second half of the year, eventually averaging $13.50 over the long term.
This adjustment in Vertex Energy's operations reflects the company's response to market conditions and its strategic focus on conventional refinery operations. The new price target set by Stifel reflects the anticipated impact of these operational changes on the company's financial performance.
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