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Why Renewable Energy Stock Gevo Surged Monday Morning

What happened

Renewable energy stock Gevo (NASDAQ: GEVO) soared Monday morning, gaining 12.1% in early-morning trading after the company announced a big deal with food processing giant Archer-Daniels-Midland Company (NYSE: ADM). As of 11:20 a.m. EDT, Gevo shares are trading up 5.5%.

So what

Gevo is a renewable energy start-up that's producing low-carbon gasoline and jet fuel from feedstock like corn. Gevo's Net-Zero projects aim to produce liquid hydrocarbons using renewable sources of energy like wind, biogas, and renewable natural gas that could emit net zero greenhouse gas emissions when used in engines.

Image source: Getty Images.

Monday morning, Gevo signed a memorandum of understanding with ADM under which it will process about 900 million gallons of ethanol produced at ADM's dry mills in Columbus, Nebraska, Iowa, and Illinois to produce nearly 500 million gallons of sustainable aviation fuel (SAF).

ADM stated that 900 million gallons represents more than half its production capacity and that its entry into SAF is among the many moves it's making to decarbonize. Gevo could potentially start producing SAF with ADM by 2025-2026 if the companies enter into definitive agreements as planned.

Now what

ADM's deal means Gevo's potential contract pipeline has now crossed a whopping 1 billion gallons. Gevo has already signed jet fuel take-or-pay contracts with some well-known names like Delta Airlines and TotalEnergies and secured contracts worth 54 million gallons per year.

In September, Gevo even received a patent in the U.S. for its process of converting ethanol and other bio-based alcohols into "drop-in, bio-based diesel and jet fuel products."

Even after today's jump, Gevo's stock is trading almost 60% below its 52-week highs of $15.57 a share. So although developments like today's can drive the stock higher in the short term, Gevo will have to convert its pipeline into definitive contracts faster to develop conviction in the stock among investors in renewable energy, especially given its dizzying market capitalization of almost $1.4 billion despite its being years away from commercial production.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.


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