Is REX American Resources Still a Buy Despite Its Recent Downgrade?

The recent U.S. credit rating downgrade by Moody's, which lowered the nation's sovereign rating to Aa1 in May 2025, has sparked broader market concerns about borrowing costs and economic stability. While this macroeconomic shift could indirectly affect companies like REX American Resources, the firm's operational resilience, strategic investments, and forward-looking growth catalysts suggest that its valuation remains grounded in realism-and its long-term potential could outweigh short-term headwinds.

Valuation Realism: A Mixed Picture

REX American Resources' valuation metrics present a nuanced outlook. As of Q4 2025, the company reported earnings per share (EPS) of $0.63, a 45.7% decline year-over-year driven by lower ethanol and co-product prices. However, this dip masks a broader trend of sustained profitability. For instance, Q3 2025 saw REX exceed expectations with an EPS of $0.71 and revenue of $175.6 million, reflecting its ability to adapt to volatile commodity markets.

The company's forward PEG ratio of 36.85 appears elevated at first glance, but this metric must be contextualized. REX's PEG ratio incorporates expectations for earnings growth tied to its $220–$230 million ethanol expansion and carbon capture projects, which are projected to enhance production capacity to 200 million gallons per year by 2026. Analysts have not yet assigned concrete growth estimates to these initiatives, but the PEG ratio's high value suggests the market is pricing in significant future upside.

Growth Catalysts: 2026 Projects as a Game Changer

REX's ethanol expansion and carbon capture projects are its most compelling growth drivers. The company has already invested $155.8 million in these initiatives as of Q3 2025, with final EPA permitting for the carbon capture component expected by June 2026 as reported. These projects are not merely speculative: they align with federal incentives like the 45Z tax credit program, which REX's CEO, Zafar Rizvi, has highlighted as a tool to enhance shareholder value.

The ethanol expansion, in particular, is poised to boost revenue through higher production volumes and operational efficiency. While specific earnings projections for 2026 remain undisclosed, REX's management has emphasized that the projects will improve margins and reduce exposure to commodity price swings. This strategic pivot toward clean energy also positions REX to capitalize on regulatory tailwinds, such as the Renewable Fuel Standard (RFS), which could further stabilize demand for ethanol.

Balance Sheet Strength and Analyst Sentiment

REX's financial health provides additional confidence. The company ended Q3 2025 with $335.5 million in cash and short-term investments and no bank debt, giving it flexibility to fund growth without relying on costly external financing. This liquidity is critical in a post-Moody's downgrade environment, where rising interest rates could strain less capitalized peers.

Analyst sentiment remains overwhelmingly positive. A "Strong Buy" consensus rating persists, with a price target of $50, reflecting confidence in REX's ability to navigate near-term challenges. Even the Q4 2025 earnings decline was tempered by the company's 21st consecutive quarter of profitability, underscoring its operational discipline.

Risks and Considerations

The primary risk lies in the timing and execution of the 2026 projects. Delays in EPA permitting or cost overruns could temporarily depress earnings. Additionally, the ethanol market remains sensitive to macroeconomic factors, such as fuel demand and government policy shifts. However, REX's diversified revenue streams-including distillers grains and carbon credits-mitigate some of these risks.

Conclusion: A Buy for the Long-Term

Despite the U.S. credit rating downgrade's macroeconomic implications, REX American Resources' valuation appears realistic when viewed through the lens of its growth catalysts and balance sheet strength. The 2026 ethanol and carbon capture projects represent a transformative opportunity, and the company's ability to maintain profitability amid sector-wide headwinds is a testament to its operational resilience. For investors with a long-term horizon, REX remains a compelling buy, provided they are comfortable with the near-term volatility inherent in a high-PEG, capital-intensive play.