Extended Tax Credits And Decarbonization Trends Will Boost Low-carbon Ethanol

Key Takeaways

• Expansion of clean fuel incentives and favorable regulatory changes drive increased recurring revenues, premium pricing, and higher margins from low-carbon ethanol and coproducts.
  
• Operational improvements and strategic diversification into high-value coproducts strengthen resilience, boost free cash flow, and enable reinvestment and deleveraging.
  
• Dependence on supportive policies, export demand, and management execution exposes earnings and margin growth to regulatory, market, and leadership risks.

Catalysts

Produces low-carbon fuels in the United States and internationally.

• Extension and enhancement of government incentives, specifically the confirmation and expansion of the 45Z clean fuel production tax credit through 2029 (and policies rewarding US/North American feedstock), position Green Plains to significantly increase recurring revenues and EBITDA from low-carbon ethanol production-projecting $150M+ annualized EBITDA from just three plants with all nine expected to qualify in 2026.
  
• Industry and regulatory momentum for decarbonization-including the removal of the indirect land use change (ILUC) penalty for low-CI fuels and proliferation of clean fuel mandates-secure robust demand and premium pricing for Green Plains' products, supporting higher utilization rates and expansion of net margins through improved carbon intensity scores.
  
• Rapid improvements in operational efficiency, plant yields, and sustained cost reductions (such as surpassing a $50M cost-saving target and targeting ongoing SG&A compression) are improving gross and net margins, with operating leverage set to amplify earnings growth as revenues from carbon capture and coproducts scale.
  
• Successful ramp-up and diversification of high-value coproducts like ultra-high protein feed, fermentation products, and corn oil-with continued strategic process innovation and bulk export growth-are building resilience to ethanol price volatility, smoothing revenue and supporting higher blended margins.
  
• Monetization of substantial carbon credits and asset optimization (including noncore asset sales and deleveraging) are significantly improving free cash flow and liquidity, enabling reinvestment into growth projects or further debt reduction, directly impacting free cash flow generation and long-term earnings power.

Green Plains Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Green Plains's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.3% today to 3.4% in 3 years time.
• Analysts expect earnings to reach $116.3 million (and earnings per share of $2.05) by about August 2028, up from $-151.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.8x on those 2028 earnings, up from -3.7x today. This future PE is lower than the current PE for the US Oil and Gas industry at 13.2x.
• Analysts expect the number of shares outstanding to grow by 1.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.36%, as per the Simply Wall St company report.

Green Plains Future Earnings Per Share Growth

Risks

• The company's significant future earnings are predicated on monetizing large carbon credits (e.g., 45Z tax credits and CCS), which exposes Green Plains to policy and regulatory risk if future governments change, delay, or reduce support for these credits, negatively impacting future revenue and earnings.
  
• Ongoing protein market weakness due to oversupply and competition from soy crushing is creating margin pressure in high-protein feed ingredients, risking lower-than-expected gross margins and diversified revenue in the long term.
  
• Green Plains is still incurring operating losses and took large non-cash impairment and restructuring charges to exit noncore assets, highlighting both execution risk in transitioning to higher-margin products and potential for inconsistent net earnings if transformation efforts stumble.
  
• The company relies on sustained export demand and strong U.S. trade policy for export markets-trade disputes or protectionist policies (e.g., tariffs, breakdown in China/India/EU negotiations) could sharply reduce export volume and pricing power, impacting top-line revenue stability.
  
• Significant operational improvements, cost reductions, and margin gains rely on continuous execution and retention of new management and cultural changes; any failure or delay in fully embedding this culture (including pending CEO appointment) could undermine efficiency gains, delaying margin expansion and overall profitability.

Valuation

• The analysts have a consensus price target of $9.125 for Green Plains based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $7.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.4 billion, earnings will come to $116.3 million, and it would be trading on a PE ratio of 6.8x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $8.66, the analyst price target of $9.12 is 5.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.