NEW YORK (AP) — Shares of Renewable Energy Group declined Monday in the wake of a proposal by federal regulators to ease 2014 renewable fuel standard targets.
That brought about a downgrade from Canaccord Genuity on Monday and company shares slumped 14 percent.
THE SPARK: On Friday the Environmental Protection Agency proposed to reduce the amount of ethanol in the nation's fuel supply for the first time, acknowledging that the biofuel law championed by both parties in 2007 is not working as well as expected.
BACKGROUND: The EPA said that the renewable fuels program was created by Congress in an attempt to lower greenhouse gas emissions and expand the nation's renewable fuels sector while reducing reliance on foreign oil. The standards determine how much renewable fuel a refiner or importer is responsible for, and are the standards designed to achieve the national volumes for each type of renewable fuel.
THE ANALYSIS: John Quealy of Canaccord lowered Renewable Energy Group Inc. to "Hold" from "Buy." He maintained a $14 price target. Quealy said that the biomass-based diesel target is flat with the prior-year period, while the advanced biofuel target is down from 2.75 billion gallons in 2013. The analyst said the proposed targets weren't a surprise. While the targets have yet to be finalized, Quealy said that he'd "hoped to see a more favorable indication."
Quealy said that he's still constructive on Renewable Energy Group's long-term prospects due to its strong operating leverage, balance sheet and management execution.
A representative for Renewable Energy Group did not immediately respond to an email seeking comment.
SHARE ACTION: Down $1.87 to $11.51 in midday trading. For the year to date, the stock has more than doubled.
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