Today, I'd like to take a closer look at Valero's partner in that green diesel fuel project, Darling International (DAR). Originally founded in 1882, and based in Irving, Texas, Darling International is the largest exchange-traded stock of its kind in the market.
The company specializes in the gathering, collecting, and processing of waste fats and oils. It holds contracts for reclaiming cooking oils from restaurant chains, as well as grease trap cleaning services.
Just imagine all the fryer grease generated every day from a single restaurant [like a McDonald's (MCD)] - then multiply that by hundreds, even thousands, of times.
That's the amount of grease and used oil DAR reclaims. It also collects animal scraps from hog and beef plants around the country, and renders out the fats and proteins from the tissue.
Normally, it processes the animal by-products and used cooking oil into reusable, resalable fats, known in the trade as "tallow." But all that's changing.
Two Companies Coalescing
DAR has partnered with independent oil refiner Valero (through VLO's wholly owned subsidiary, Diamond Alternative Energy) in a $368-million project known as the Diamond Green Diesel plant. Two full years in the making, the Diamond Green project - located in Norco, Louisiana, (not far from New Orleans) - began full production operations at the end of June of this year.
The plant takes waste oil from all those grease traps around the country, and together with the fat renderings, processes it into green diesel fuel. According to estimates, the Diamond Green Diesel plant will process approximately 1.2 billion pounds of fat - and turn it into 137 million gallons of renewable diesel fuel, each year.
Estimates from the U.S. Department of Energy say the new facility will triple the amount of renewable diesel produced in the United States. That makes Diamond Green the largest biomass diesel plant in the country.
Though similar in nature, fat-based biodiesel, or renewable diesel, is molecularly different from that made from plant-based material, such as corn. Though a "molecular" difference may not sound like a big deal, when it comes to diesel fuels, it is. For one, it burns cleaner, and is more easily mixed with traditional diesel.
Renewable diesel is also easier to transport through traditional pipelines, something biodiesel has problems doing. Without proper precautions, plant-based biodiesel can gel up during the transportation process, especially at high temperatures, rendering the fuel useless.
What it All Boils Down to …
The launch of the Diamond Green plant has sparked a jump in share price, sending DAR up nearly 25% since the beginning of the year.
But it's not too late to get in on DAR's renewable diesel boom.
In fact, I think we could see some impressive share movements in the coming months.
Darling is set to report its second-quarter results on August 7. Earnings estimates are expected to come in around $0.33 per share, up from $0.27 in the previous quarter.
That alone could send shares up. However, because the Diamond Green plant didn't open until the very end of the quarter, the August earnings announcement will NOT include the revenue generated from the new plant. And that's going to make a huge difference next quarter.
See, Darling CEO Randall Stuewe says that with the plant running at full capacity, Diamond Green could generate more than $41 million for both Darling and Valero. That could mean a potential boost in quarterly earnings per share of nearly 37% for DAR. And that's when you could see some serious price movements.
But this boost won't come until the next quarter. So if you were to get in now, you'd likely enjoy a modest bump at the next earnings announcement … With the potential for a big jump in price in the following quarter. And "the chase" continues ...