Rex Stores: Reaching an Inflection Point in Earnings

 |  Includes: AVR, BIOF, GPRE, REX
by: Clumsy Rick, CFA

As a follow up to my last post on Rex (RSC) on September 4, the company reported second quarter results this morning that were quite positive. EPS were $0.09 (about $0.03 excluding an accrual benefit), reversing the trend of losses from the last three quarters.

The ethanol division would have been break even except for the start up costs at the last plant it opened. More importantly, ethanol margins have improved in third quarter so far and all plants are operating profitably.

Another positive update was on the real estate front where the company is making progress leasing out vacant properties, including part of its largest distribution center for which a lease was signed after the close of the quarter. In addition to property it is already landlord on, the company can either sell or lease out 23 former stores and 2 distribution centers.

  • Estimated Asset Valuation Update: Corporate Cash and + $7 million Tax Refund = $9.50/share
  • Real Estate: 43 stores and 2 warehouses, net $3 millon mortgage = $5.00-$5.50/share
  • General Tax Credits: $3.40/share
  • Ethanol Interests (138 million gallons per year at name plate capacity): ?????

In summary, Rex has substantial assets, including cash and tax credits that exceed the current share price. The bleeding has stopped and there is the potential for a significant increase in earnings and cash flow in coming quarters as the company leases or sells vacant properties and as ethanol turns profitable, as it has done so far in third quarter.

Disclosure: Long RSC