Ethanol Downgrades Keep Coming (AVR, PEIX, VSE)

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If you watch our daily hits on stocks that are hitting 52-week lows, then you know by now that ethanol stocks get kicked almost daily.  Today is no different as Goldman Sachs has cut earnings estimates out of three usual suspects on corn-based ethanol and now projects some actual EPS losses instead of positive earnings in 2008.

  • Aventine Renewable (AVR) current year cut from $0.95 EPS to $0.76 EPS; next year cut from $0.55 EPS down to -$0.15 EPS.
  • Pacific Ethanol (PEIX) current year cut from $0.16 EPS to $0.05; next year cut from $0.35 EPS to -$0.35.
  • Verasun (VSE) current year cut from $0.46 EPS to $0.35; next year cut from $0.70 EPS to $0.15 EPS.

The cut estimates reflects a continued cautious rating on the sector as Goldman Sachs believes a long anticipated oversupply has arrived.  They note that ethanol capacity growth needs to come to a halt and existing capacity needs to run at lower utilization rates.

Goldman Sachs says its earnings projections are now significantly under First Call estimates.  Does that mean even more downgrades on the way from other research firms that have already cut them?  We have had a serious concern for some time about corn-based ethanol in the US.  Other ethanol is profitable elsewhere and without the subsidy this sub-sector of the industry would likely have some viability issues.  This is also a very political topic and the argument could be tossed up that if Iowa primaries weren’t so important that this would be deemed as snake oil.

Articles of interest:

Jon C. Ogg
September 27, 2007