D.C. Power Propels Ethanol Shares
Andrew Farrell, 08.31.07, 12:09 AM ET
Alternative energy companies got fuel from a rosy forecast Thursday.
Citing the potential boon from favorable energy legislation, Lehman Brothers analyst Mansi Singhal upgraded VeraSun Energy and Aventine Renewable Energy Holdings to "overweight" from "equal weight." Shares of VeraSun gained 41 cents, or 3.4%, to close at $12.65 and Aventine climbed 46 cents, or 3.4%, to $14.16.
Singhal also upgraded his rating on the sector to "positive" from "neutral" on Thursday. The upgrade pushed most ethanol producers higher. Shares of Pacific Ethanol gained 1.1%, or 12 cents, to $11.51; shares of BioFuel Energy gained 0.3%, or 2 cents, to $6.14; and shares of US BioEnergy gained 1.6%, or 17 cents, to $10.51.
Earlier this year, the Senate passed an energy bill that includes a provision to increase the use of ethanol to 8.5 billion gallons in 2008 and 13 billion gallons in 2012. The House bill does not increase the mandate. The difference will be reconciled when Congress returns from its August recess.
Despite the uncertainty of the process, Singhal says there is a 55% chance the ethanol mandates will be increased before the end of the 110th Congress next year. He says that if the energy increase proposed by the Senate becomes law, shares of ethanol producers could rise by as much as half.
Ethanol makers should also benefit from less volatility in corn prices. Increased ethanol production combined with demand from food producers created a corn shortage that drove up prices over the past year. Singhal said those prices will now hold steady and might even drop slightly as supply catches up with demand. (See: "More Corn, Less Costs For Ethanol Producers")
Support for ethanol is gaining in Washington as politicians search for a way to reduce oil dependence. Earlier this year, President Bush called for a 20% reduction in gas consumption by 2017. (See: "Business Booms In The Beltway")
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