Ethanol Stocks Down
Shares of ethanol producers fell Friday after an analyst cut his rating on two companies and slashed his price target for a third, citing concerns about weakening pricing power for the industry.
Ian Horowitz of Soleil Securities Group trimmed his expectations for the price producers will receive for ethanol through 2008, “due to both the overall decline from peak gasoline prices as well as the increased competitiveness of the industry and diminishing pricing power for ethanol producers.”
In cutting his rating on Pacific Ethanol Inc. two notches, to “Sell” from “Buy,” Horowitz said he was using “a conservative approach to the ethanol industry.”
Horowitz also reduced his rating on VeraSun Energy Corp. to “Hold” from “Buy,” citing recent government figures showing gasoline inventories that are near peak capacity, while prices are falling. “Even if gasoline prices begin to increase again, refiners are becoming more selective and discretionary in their ethanol purchases and will continue to pressure producers for pricing advantages,” he stated in a note to clients.
Meanwhile, the analyst said, he is concerned about the price of corn, a key ingredient for ethanol, through the 2007 season.
Pacific Ethanol shares gave up 65 cents, or 4.9 percent, to $12.71 on afternoon trading on the Nasdaq, where it has traded in a 52-week range of $7.71 to $44.50.
Brookings, S.D.-based VeraSun shares gave up 31 cents, or 2 percent, to $16.11 in afternoon trading on the New York Stock Exchange, after sinking as low at $15.51 earlier in the session. VeraSun shares began trading in June at $28 per share, and have changed hands as high as $30.75.
Shares of Aventine Renewable Energy Holdings Inc., which also held its IPO in June, were down 48 cents, or 2.2 percent, to $21.57 on the Big Board, a retreat from their peak at $42.30, hit on their first trading day.
Horowitz kept his “Hold” rating on Pekin, Ill.-based Aventine, but cut his price target on the stock to $19 from $25, noting that one of the reasons ethanol prices are stabilizing is that gasoline refiners are now “completely discretionary buyers,” because the federal government repealed a requirement to blend winter-use gasoline with oxygenates like ethanol.
Elsewhere in the industry, shares of the Andersons Inc., a Maumee, Ohio, ethanol producer, were down 96 cents, or 2.8 percent, to $33.68, and shares of MGP Ingredients Inc. of Atchison, Kan., were off 90 cents, or 4.2 percent, to $20.76. Both stocks trade on the Nasdaq.
Shares of Archer Daniels Midland Co. were off 29 cents, to $37.12 on the New York Stock Exchange. The Decatur, Ill.-based agribusiness is the nation’s largest producer of ethanol.
