Sector Snap: Ethanol Drops on Outlook
Thursday March 13, 1:03 pm ET
Ethanol Shares Fall As Analysts Issue Cautious Outlook on Near-Term Profitability
NEW YORK (AP) -- Ethanol stocks fell Thursday as analysts issued cautious notes about the industry's near-term outlook following VeraSun Energy Corp.'s report of a fourth-quarter profit decline.
VeraSun, which is set to become the nation's largest ethanol producer once its acquisition of US BioEnergy Corp. closes in coming weeks, said its earnings fell more than 81 percent during the last fiscal period.
Though results beat Wall Street expectations, with analysts predicting a loss, VeraSun's margins were squeezed by soaring corn costs and weak ethanol pricing as the industry expanded capacity faster than demand.
Ethanol pricing has started to improve this quarter as the industry moderated capacity additions and the spring and summer travel seasons started to approach. However, corn prices have outpaced those gains, climbing to new records on a weaker dollar and surging global demand for food, animal feed and ethanol itself.
Lehman Brothers analyst Mansi Singhal called VeraSun the "best operator in the (ethanol) space" with a "competitive edge" in a note Thursday. However, the analyst remained bearish on the sector and maintained an "Equal Weight" rating on VeraSun's stock.
"We expect excess supplies to pressure ethanol price from 3Q08 and corn price to stay at elevated levels," Singhal wrote.
Soleil Securities analyst Ian Horowitz remained "cautious" on Verasun, saying he expects margins to remain "fairly tight for the foreseeable future."
"We suggest investors stay to the side for now," he wrote.
Investors sent VeraSun shares down 43 cents, or 6.2 percent, to $6.53 in afternoon trading and US BioEnergy down 32 cents, or 5.8 percent, to $5.27.
Other stocks followed suit. BioFuel Energy Corp. fell 18 cents, or 4 percent, to $4.27; Pacific Ethanol Inc. dropped 12 cents, or 2.3 percent, to $5.11; and Archer Daniels Midland Co. fell 53 cents to $43.6
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