On Tuesday, BofA Securities revised its stance on Origin Materials (NASDAQ:ORGN) shares, downgrading the stock from Buy to Underperform and reducing the price target to $1.50 from the previous $2.50. The stock currently trades at $1.11, having declined nearly 10% in the past week according to InvestingPro data. The adjustment comes as the analyst expressed concerns over the company's ability to license its technology amid shifting focuses and market uncertainties.
Origin Materials has been recognized for its innovative process, which transforms plant residues into CMF (a furan-based building block chemical) and HTC (a carbon-intensive product similar to carbon black). These products have been noted for their potential in the market due to their unique value proposition compared to existing alternatives.
The company operates a demonstration plant located in Ontario, which serves to produce CMF and HTC for customer development projects. With revenue of $35.12M and a weak gross profit margin of 11.37%, the company faces significant operational challenges.
However, BofA Securities highlighted several factors contributing to the revised outlook. A key concern is the company's pivot towards the PET (polyethylene terephthalate) caps business, which may detract from its ability to license the original technology.
InvestingPro analysis reveals the company is quickly burning through cash and is not expected to be profitable this year, adding weight to these concerns. Moreover, the uncertain stance of the U.S. on sustainable products, the recent departure of co-CEO Rich Riley who led the commercialization of CMF, and the high capital expenditure requirements alongside challenging economics for potential licensees have added to the skepticism.
The downgrade is a result of revisions to the Discounted Cash Flow (DCF) analysis conducted by BofA Securities, leading to a lower price objective for Origin Materials' stock. The firm's new price target of $1.50 represents a significant decrease from the earlier $2.50 target, reflecting the increased doubts about the company's future performance and market position.
According to InvestingPro's Fair Value analysis, the stock appears fairly valued at current levels. Subscribers can access 10 additional ProTips and a comprehensive Pro Research Report for deeper insights into Origin Materials' financial health and growth prospects.
In other recent news, Origin Materials, Inc. has announced key changes in its leadership and plans for commercial production of PET caps. The company has seen a reshuffling of its executive team with Rich Riley, Co-Chief Executive Officer, deciding to step down by the end of 2024, making way for John Bissell as the sole CEO. Moreover, Matt Plavan, the current Chief Financial Officer, will also serve as Chief Operating Officer starting the same year.
These changes coincide with the company's announcement of its plans to commence commercial production of PET caps following a successful Factory Acceptance Test of its CapFormer System. Origin Materials reported a Q3 revenue increase to $8.2 million from $7.1 million year-over-year, maintaining a solid cash position of $113 million. The company aims to capture a share of the $65 billion caps and closures market, expecting to generate initial revenue from caps in the first quarter of 2025.
Despite these optimistic projections, the company's cash balance has seen a reduction in the past year. CFO Matt Plavan discussed improving gross margins as manufacturing scales up, while co-CEO John Bissell highlighted the potential of the company's innovative technologies. Origin Materials continues to explore strategic partnerships and is in ongoing discussions for additional business in the caps and closures sector.
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