Bank of America analysts, which recently began coverage of four ethanol producers, rated only one a “Buy” as the industry braces for squeezed margins on higher raw material costs and lower pricing power. Analyst Philippe Lanier rates Aventine Renewable Energy Holdings Inc. (AVR) as a “Buy” with a $50 price target.
The ethanol industry has seen prices decline in tandem with the recent drop in oil prices. At the same time, corn costs are on the rise — a reversal of the market earlier this year that was marked by high ethanol pricing and low corn costs. While the rest of the ethanol producers will likely feel the margin crunch from current market conditions, Lanier said Aventine may be buffered from those risks due to its distribution business.
“Aventine operates a large distribution network many of its peers lack, which results in lower costs and additional revenue, resulting in 50 percent higher profitability per gallon than its pure-play peers,” he wrote in a note to clients.
Another Bank of America analyst, Eric Brown, rates Pacific Ethanol Inc. (PEIX) a “Sell,” saying the company will likely face eroding margins and capacity uncertainty in the coming months.
“We have forecast that substantial new ethanol capacity coming online will pressure ethanol prices and drive up corn costs for Pacific Ethanol and other ethanol producers,” Brown said.
He rates VeraSun Energy Corp. (VSE) and Andersons Inc. (ANDE) “Neutral.”
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