Balloon Punctured For Ethanol
Carl Gutierrez, 09.20.07, 8:45 PM ET
Friedman, Billings, Ramsey sees little fuel for investors in ethanol stocks.
Ethanol prices have fallen 30% over the past few months, and FBR analyst Eitan Bernstein said in a report that pricing is unlikely to firm up next year.
“While we have observed some positive incremental data points and continue to expect new, larger renewable fuels standard later this year,” Bernstein said, “we expect ethanol prices to remain under pressure through 2008 as the industry’s ‘growing pains’ continue.”
The average U.S. ethanol spot price has fallen from $2.45 per gallon in mid-May to $1.70; correspondingly, FBR estimated that margins have dropped to 15 cents per gallon from 75 cents per gallon.
Bernstein lowered his price forecast for 2007 to $2.05 per gallon from $2.20, and his 2008-2010 forecast to $1.80 per gallon from $1.95. He also sharply downgraded his price targets and profit expectations for three ethanol producers.
Bernstein dropped his third-quarter earnings per share forecast for for Aventine Renewable Energy Holdings to zero from 15 cents per share, his full-year forecast to 70 cents from $1.05 and his full-year 2008 projection to 35 cents from 80 cents. He also lowered his 12-month price target to $9 from $24.
Although it spent most of the day in the pits, a late-day rally lifted Aventine to finish the day with a 1.1%, or 13 cent, loss at $11.55.
Bernstein expects VeraSun Energy to log third-quarter earnings of 15 cents per share, down from his previous prediction of 26 cents per share. He also lowered his 2007 forecast to 35 cents from 70 cents, and 55 cents in 2008, down from $1.30. He slashed his 12-month price target to $12 from $24. VeraSun shares ended the day down 4.5%, or 54 cents, at $11.48.
Bernstein cut his third-quater forecast for Pacific Ethanol to a loss of 15 cents per share from a gain of 3 cents per share, a loss of 30 cents per share for the year, down from a gain of 10 cents, and a loss of 20 cents per share in 2008, down from a gain of 30 cents. He slashed his 12-month price target on its shares to $8 from $15. Pacific Ethanol dropped 8.4%, or 94 cents, to close at $10.23.
He thinks there could be further downside for all three.
"Many analysts and investors like to look at replacement cost," Bernstein said, "however, we note that crude oil refiners typically trade well below replacement cost, and that is projected earnings and cash flows that typically determine asset values, suggesting few real price supports."
forbes.com |
