- Pacific Ethanol shares moved sharply higher after H.C. Wainwright reiterated its Buy rating and issued a $16.00 price target.
- The analyst believes that a shift to allocate nearly 20% of the company's capacity to high-grade alcohol could pave the way to profitability.
- The stock could see some near-term consolidation following its significant move higher, but the intermediate-term trend remains bullish.
H.C. Wainwright's Amit Dayal believes that Pacific Ethanol's significant shift to allocate nearly 20% of its capacity to high-grade alcohol production could turn its losses into profits. The $16.00 price target represents a premium of more than 170% to Wednesday's intraday price of $5.88 per share, pointing to significant upside potential.
A price target is an analyst's projection of a security's future price. Price targets can pertain to all types of securities, from complex investment products to stocks and bonds. When setting a stock's price target, an analyst is trying to determine what the stock is worth and where the price will be in 12 or 18 months.
In mid-August, Pacific Ethanol reported a second quarter profit driven by expanded production of high-quality alcohol used in sanitizers and disinfectants. The ongoing COVID-19 pandemic has driven demand for these products, particularly as many parts of the economy continue to reopen, creating a need for regular disinfection and cleaning activity.
From a technical standpoint, the stock extended its breakout after having already risen more than tenfold since its lows in March. The relative strength index (RSI) moved into overbought territory with a reading of 71.14, but the moving average convergence divergence (MACD) experienced a bullish crossover. These indicators suggest that the stock could see more upside ahead after some near-term profit-taking and consolidation.
Traders should watch for consolidation above reaction highs of $5.33 before a further move higher. If the stock breaks out further, traders could see a move toward $8.00 – the price target for its ascending triangle breakout. If the stock breaks down, traders could see a move to retest reaction lows of $3.30, although that scenario appears less likely to occur.
The Bottom Line
Pacific Ethanol shares moved sharply higher after H.C. Wainwright reiterated its Buy rating and raised its price target to $16.00 per share. While the stock could see some near-term consolidation, the long-term picture appears to be bullish from a technical and fundamental standpoint.
The author holds no position in the stock(s) mentioned except through passively managed index funds.