Thursday, June 19, 2008

Credit Suisse analyst Mark Flannery cut his U.S. forecast for ethanol capacity to 9.5 billion gallons from 10 billion gallons. The new outlook comes after the government said Tuesday that flooding had engulfed nearly 10 percent of corn crops in Iowa, the largest U.S. grower.

Corn can be used to make ethanol, which in turn can be used as a substitute for or additive to gasoline.

On Tuesday, the July contract for corn rose 9.75 cents to $7.425 a bushel on the Chicago Board of Trade. Prices for December corn rose even higher, up 11 cents to $7.76 a bushel.

While the economics of the ethanol industry are bleak right now, there is a chance for a turnaround for those companies that can make it to the end of the year, Flannery said.

Flannery cut his 2008 earnings estimate on Verasun to less than 1 cent per share from a previous estimate of 35 cents per share. Analysts polled by Thomson Financial expect, on average, earnings of 25 cents per share.

He slashed his price target to $5 from $7, implying he expects the stock to rise 19 percent over Tuesday`s $4.21 close.

For Aventine Renewable Energy Holdings Inc., Flannery lowered his profit estimate for the year to 10 cents per share from 21 cents per share, and his price target to $5 from $7. Analysts expect earnings of 32 cents per share for the year.

The new target implies he expects shares to increase 9 percent from Tuesday`s $4.58 close.
 
And for Pacific Ethanol Inc., Flannery now expects a 2008 loss of 41 cents per share, compared with a previous estimate for a 29 cents per share loss. Analysts on average expect a loss of 25 cents per share. Flannery cut his price target to $3 from $5, implying he expects the stock to jump 21 percent over Tuesday`s $2.49 close.

"At the very least, as a result of recent shifts in economics, we expect the U.S. ethanol market to experience a more balanced period at some point in the second half of 2008, and this should allow ethanol prices to trade up a little against gasoline and restore a little economic viability to the ethanol side of the energy industry," Flannery said in a note to clients.


© Copyright 2008 Associated Press.

Source: Associated Press, www.ap.org