Saturday, March 8, 2014

Renewable Energy Group (REGI)

Company Overview
Renewable Energy Group is a leading North American Biodiesel with a nationwide distribution and logistics system. They are focused on converting natural fats, oils, and greases into advanced biofuels and on converting diverse feedstocks into renewable chemicals. They use lower cost feedstocks that will not have any impact on the price of food unlike some of their competitors.

Company Financials
Stock price is currently at 70% of its book value. Cash and short term investment have been increasing since 2008. Short term debts have increased in the past year however with a current ratio of 3.54 the company will have no issue in paying off short term liabilities. Liabilities have increased during 2013 however that was due to upgrade costs of two bio-refineries. Net margins increased greatly over the past year from 4.28% in 2012 to 11.03% in 2013 ranking higher than 75% of companies in its industry. Return in equity has also been increasing from 29.23% in 2012 to 36.13% in 2013 ranking higher than 68% of companies in its industry.

Ranking provided by:  

2013 Results
 In 2013 Renewable Energy Group sold 37% more gallons of biodiesel, increased revenue by 48%, increased gross profit to 16% from 6%, increased its adjusted EBITDA by 54%. Its 4Q13 operating highlights were listed as
-          Increased sales by 89.9% when compared to 4Q12
-          80.9% production increase compared to 4Q12
They announced in October spending of $30 million to further upgrade REG Mason City to allow the plant to produce high quality biodiesel from lower-cost raw materials like inedible corn, expected to be completed in 2014 and will not materially interrupt production. This upgrade follows REG Albert Lea biorefinery successfully completed in September; 4Q13 represented the first full quarter of flexible multi-feedstock operations at REG Albert Lea
Renewable Energy Group enhanced its distribution capability by completing a new barge-loading facility at REG Seneca, this compliments truck and rail shipping capabilities and enables a lower-cost method to ship biodiesel through inland waterway system
 In January Renewable Energy Group announced entry into industrial biotech and the renewable chemicals market with its acquisition of LS9, inc. REG Life Sciences now can convert diverse feedstocks into a wide range of valuable chemicals, a cornerstone investment for REG Life Sciences.

Source: Renewable Energy Group 2013 Annual Report

The cost of raw materials used as feedstocks are volatiles and results of operations could fluctuate substantially. Loss or reductions of governmental requirements for the use of biofuels could have a material adverse effect on revenues and operating margins, they believe that increased demand for biodiesel since July 2010 is directly attributable to the implementation of RFS2 which requires that a certain volume of biodiesel be consumed
In December 2013, total long-term debt was $27.15 million. Subjects them to potential defaults, could adversely affect ability to raise additional capital to fund operations and limits ability to react to changes in the economy/ biodiesel industry

Source: Renewable Energy Group Annual report 2012


Renewable Energy Group seems to have a good forward looking focus that is aiming at cutting costs to improve the company’s margins. In relation to its risk factors the long term debt of the company is an issue if there are changes within the industry or economy that the company needs to react to quickly like RFS2 which the company relies on for its demand of biodiesel fuels. Renewable Energy Group is in good financial health and it not yet selling at its book value. The stock seems to very volatile and would be one worth looking into when it takes another dip in price. 

Monday, March 3, 2014

Guaranty Federal Bancshares (GFED)

Guaranty Federal Bancshares
Company Overview
Founded in 1913 in Springfield Mo, Guaranty offers a wide range of products for both individuals and local-area businesses. It is found in 9 different locations, has 100+ area surcharge-free ATMs and offers its BaZing checking, a value checking account that offers discounts on on shopping, dining, and traveling, cell-phone protection, vision, and hearing savings, as well as a number of other benefits, for a monthly service charge.
Investment Attractiveness Qualities
Guaranty has increased its net margin and ROE over the past 3 years and it currently selling at 60% of its P/B value with a price target of $30. With a P/E ratio of 7.03, and a Debt/Equity ratio of 0.31, it is low on debt and has a lower P/E than competitors in its industry. The bank is earning a 26.90% return on its interest. The bank’s net margin also looks to be increasing in the past 12 months being now at 17.40% (ttm)
On its balance sheet, cash and accounts receivable been increasing over the past 2 years while debt/equity has been decreasing over the past 2 years. Cash flow has been increasing over the past two years while long-term debt liabilities have been decreasing.
                In Guaranty’s 2013 fiscal year results net income increased from $1,944,000 in 2012 to $5,240,000 in 2013. Non-interest expense decreased by $499,000 due to received proceeds on an insurance claim related to a loss on deposit accounts that was recognized in the first quarter of 2013. The bank also reduced its nonperforming assets to $19.9 million (Dec. 31, 2013) from $22.5 million (Sept 30, 2013). This will continue to be a focus of the bank as said in their annual report. Guaranty has seen improvement in net margin and profitability given a challenging operating environment. There has also been multiple insider buying at the beginning of February (2/4/2013)
                The bank has a very high P/E to growth ratio (36.60). There has also been recent selling by one insider in the company although this could prove to be nothing serious. There is weak loan demand and continued low interest rates that the bank faces. There has been a decline in loan balances and increased competition in loan pricing which has significantly elevated the challenge to improve or maintain the loan yield. Long term interest rates are also increasing which has been reducing consumer demand for long-term secondary market mortgage loans which in turn has decreased Guaranty’s non-interest based income. This mortgage interest level is expected to remain or increase higher than its current level which means that the secondary market will remain a challenge compared to income in recent quarters.

                Guaranty Federal Bancshares seems to be an undervalued bank that is selling at 60% of its book value. With a price target of $30 it seems to be an attractive investment. Adding to that fact is that since the bank has been around since 1913 it has survived major economic collapses such as the Great Depression and our most recent recession. The risks attached to the bank are increased competition in loan pricing with a continued low interest rate. However they have greatly increased their net income in 2013. This stock has levelled off since a drop in its price in July 2013 but might be set for an increase due to improved performance. However with increased competition while still operating in a weak economy it will be one to keep an eye on.

Sunday, March 2, 2014

Genworth Financial

Company Overview
                Genworth financial is an insurance company that provides services in three areas: retirement and protection, U.S. mortgage insurance, and international. Their products include life and long-term care insurance, mortgage insurance, lifestyle protection insurance, and annuities. They are a 9.5 billion dollar global insurance agency that ranks among the fortune 500 companies.
Company Highlights
New company CEO as of January 1st 2013, Thomas McInery he is well liked by analysts and has a wealth of knowledge in the field. He is currently leading the company in its turnaround. Genworth hit its goals for the 2013 period, they are holding company cash greater than 1.5X Debt service with a $350MM buffer, addressed near term debt maturities, ratings are “stable”, maintained margins in LTC (long term care) reserves and are restructuring actions to reduce expenses.
Currently starting their transition to growth stage, expecting moderate recovery across the U.S. economy with slightly below average GDP growth, a slow decline slow decline in unemployment, modest home price appreciation, and modest increase in 30 year fixed rate mortgage
                Aspires to have a 7-9% ROE by 2016. In 4Q13 net operating income increased 20% versus prior year. Company said to have made “progression on strategic objectives from 2013”. International MI performance was up 12% sequentially on lower losses with improved capital positions in Canada and Australia. U.S. MI earnings up $9MM, up $38MM from prior year on improving losses from lower delinquencies and continued improvement in the housing market. U.S. life insurance up 63% versus in the prior year. $400MM capital raised and dedicated for anticipated increase in U.S. MI capital requirements
Data source: Company financials and annual report
Why Buy
                A fortune 500 company that is currently trading at 50% of its book value that successfully saw through its stabilization goals. Net income has been increasing over the past 2 years. Earnings per share increased from $0.25 in 2011 to $1.04 (ttm). Net margin increased from 1.18% in 2011 to 5.26%ttm since company turnaround. ROE increased to 3.34%ttm. Solid company that has had an excellent management change that is undervalued currently entering their company growth period.