Episode Details

REX American Resources Corporation (REX) Fiscal Q2 2026 — Fiscal Q2 2026 (13 weeks ended July 31; the 8-K hit EDGAR at 09:44 ET on Wednesday September 2, a before-the-open print, so September 2 is the reaction session): diluted EPS $1.06 vs $0.22 a year ago, gross profit $53.3 million vs $14.3 million. The stock opened $39.99, a 4.76 pct gap down from the $41.99 prior close, then reversed intraday to close $42.80, up 1.93 pct on the session. REX American Resources just posted the best earnings per share in its history and sold exactly as much ethanol as it did a year ago - 70.6 million gallons both quarters, not one gallon more. Nearly half of the $39.0 million improvement in gross profit is Section 45Z production tax credit income that did not exist in these accounts a year ago, and the statute retires it after fuel produced in 2029. Our call is bearish at $42.80, fair value $31.76. THE CALL: BEARISH (3/5, MODERATE - GOOD BUSINESS, SUBSIDY-INFLATED PRINT) — base-case value ~$31.76 vs ~$42.80 today. KEY METRICS: - CALL: BEARISH / AVOID, 3/5. Fair value $31.76 vs the $42.80 close - a sum-of-parts of cash, six ethanol plants, and a tax credit with a statutory end date, each valued separately because each has a different lifespan. Strip the cash and the credit and the market is paying about 18x normalized earnings at what looks like the top of the crush-margin cycle. - THE RECORD DIDN'T COME FROM VOLUME: consolidated gallons of ethanol sold were 70.6 million in Q2 2026 and 70.6 million in Q2 2025 - identical. The average selling price per gallon moved from $1.75 to $1.78, under 2 pct. Neither volume nor price explains the quarter. - THE $39.0M GROSS-PROFIT INCREASE SPLITS INTO EXACTLY THREE PIECES: $18.4 million of production tax credit income (47 pct), $10.6 million from lower cost of sales (corn got cheaper), and $9.9 million of additional product revenue - mostly distillers corn oil, up from $0.54 to $0.72/lb. The true credit contribution is higher once you count the $6.3 million jump in equity income from REX's four unconsolidated plants. - INCOME ISN'T CASH YET: the $18.4 million credit sits in other assets on the balance sheet, which grew $22.3 million over six months against $26.0 million of credit booked - about six-sevenths still a receivable. Six-month net income of $62.3 million produced only $38.0 million of operating cash flow; after $35.0 million of capex, six-month free cash flow was about $3 million. - THE BALANCE SHEET IS THE STRONGEST PART: $379.5 million of cash and short-term investments at July 31, no bank debt, even after funding $191.2 million of the One Earth expansion and carbon-capture project entirely from cash on hand (budget $220-230 million). - THE EPS HISTORY PROVES THE CALL: filed annual diluted EPS ran $1.57, $1.73, $1.65 across three prior fiscal years - a tight 16-cent band through very different corn and ethanol prices. Strip the 45Z credit recognized through the tax line and the year to January 2026 lands back at about $1.68, inside the same band. The breakout year and the arrival of the credit are the same event. Only one Wall Street firm covers the stock, with a price target last set in August 2024, before the credit ever touched these accounts. What to watch: UP: the Section 45Z credit rate (production tax credit income divided by gallons sold) holds near this quarter's ~26 cents/gallon in Q3 rather than reverting toward Q1's ~11 cents, proving it is a run rate and not a catch-up. DOWN: the ~$22 million of accrued credit sitting in other assets keeps climbing instead of converting to cash, or the EPA's draft Class VI injection-well permits stall in the comment period. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.