Analysts Say Ethanol Demand Will Keep Pace With Capacity Growth, Producers Poised to Benefit
biz.yahoo.com
Thursday August 10, 3:22 pm ET
NEW YORK (AP) -- Demand for ethanol should bolster the alternative fuel's market price and provide increasing value among producer equities, a Friedman Billings Ramsey analyst said Thursday.
FBR analyst Jacques Rousseau initiated coverage of the sector with "Outperform," or "Buy," ratings on newly public VeraSun Energy Corp. and Aventine Renewable Energy Holdings Inc. He started Pacific Ethanol Inc. with a "Market Perform" rating.
"Although ethanol production capacity in the U.S. is growing fast, demand should essentially keep pace with the rise," he wrote.
The analyst said he expects high margins and strong earnings from ethanol producers, based on federally mandated increases in ethanol-blended fuels and the brokerage's outlook for high oil and gasoline prices. He forecasts ethanol prices between $2 and $2.30 per gallon over the next five years, well ahead of average production costs of $1.30 to $1.50 a gallon.
Rousseau said VeraSun "is ahead of its peers in terms of capacity expansion plans." Aventine, meanwhile, is one of the lowest-cost producers of ethanol due to its particular milling technology and use of coal as a power source. The analyst called Pacific Ethanol's plan to build plants on the West Coast and ship corn from the Midwest "a unique but unproven business model."
Rousseau's outlook, however rosy, couldn't counteract the dampening effect of lower crude prices Thursday, and ethanol stocks moved lower in line with falling oil prices.
On Tuesday, VeraSun Energy shares got a boost after the company posted solid second-quarter profit, reversing a year-ago loss and coming in ahead of Wall Street's expectations. However, the stock has slipped 22 percent from its June debut closing price of $30.75. Shares of VeraSun shed 82 cents, or 3.4 percent, to $23.03 in afternoon trading on the New York Stock Exchange.
Aventine, the latest ethanol producer to go public, has seen shares retreat 25 percent from its first-day close of $40.83. Aventine shares dipped 3 cents to $30.65 Thursday. Shares of Archer Daniels Midland Co. slipped 3.4 percent to $40.38, MGP Ingredients Inc. declined 2.1 percent to $19.44 and Pacific Ethanol Inc. also slid 30 cents to $16.60. |
