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The US Treasury tried to calm the bond market this week by doubling its buybacks of long-term debt, which briefly lowered yields. However, those moves reversed as investors remained worried about inflation and government spending. Yields are the interest rates paid on government bonds, and they act as a benchmark for the rest of the economy.
For a company like Fervo that must spend billions of dollars to build power plants before it earns any revenue, high yields are a direct problem. They make it more expensive to borrow the cash needed for construction. With Fed Chair Kevin Warsh set to speak at Jackson Hole, the company faces a period where its cost of doing business is being set by macro forces it cannot control.
Source: Bloomberg Markets and Finance
Baird lowered its target for the stock to $35 from $50, though it still recommends the stock as a buy. This change came after the company shared more details about its construction progress and revenue timing. Even with the lower target, the firm's outlook remains well above the current trading price of about $17.
Fervo is in a race to prove its geothermal technology works at scale. The company reported a loss of about 38 cents per share, which was much wider than the 7 cents analysts expected. Because the company is still building its first major project, Cape Station, it generated zero revenue this quarter. This is normal for a startup at this stage, but it means the company is burning through cash to fund its drilling.
Management noted that they are making progress on drilling efficiency and are starting to test the first phase of the Utah project. However, the company also disclosed potential issues with the power grid's ability to take the electricity it produces, which could delay when it starts making money in 2027. For long-term owners, the focus remains entirely on whether the company can finish construction without needing to sell more shares to raise cash.
Source: 8-K filing
Johnson Fistel, a law firm that specializes in suing companies on behalf of shareholders, opened an investigation into Fervo this week. The move follows the company's disclosure that its Cape Station project faces potential grid connection issues and delays to its 2027 revenue. These types of investigations are common when a stock price drops quickly, and they often do not lead to a formal lawsuit or a financial hit.
Source: GlobeNewsWire
Fervo has missed its own targets by wide margins in its first two quarters as a public company. This suggests management is still struggling to accurately forecast the high costs of building its first massive power plant.
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