Low ethanol prices and high corn costs have hurt the sector’s profitability. Pacific Ethanol Inc. Friday posted a surprisingly large third-quarter loss. VeraSun Energy Corp. last week said third-quarter profit fell more than 75 percent, despite higher revenue.
Although a glut has led to lower ethanol prices, some companies are pursuing expansion plans, focused on long-term goals rather than what they consider short-term supply issues.
“Incredibly, all three companies we cover _ Aventine Renewable Energy, Pacific Ethanol, and VeraSun Energy _ are sticking with long-standing aggressive growth plans, even in the face of significant negative free cash flow and weak ethanol crush spreads,” Goldman Sachs analyst Arjun Murti said in a research note Sunday evening.
He added that he does not expect a higher Renewable Fuels Standard to fundamentally change the “bearish margin outlook for 2008 and would use any rally thereafter to sell shares.”
Pacific Ethanol sank $1.03, or 18.1 percent, to $4.67 and reached a 12-month low of $4.55. The stock has fallen more than 60 percent this year. VeraSun fell 67 cents, or 6.1 percent, to $10.39 and Aventine Renewable Energy Holdings Inc. dropped 51 cents, or 5.5 percent, to $8.80.
Shares of Archer-Daniels-Midland Co., the country’s biggest ethanol producer, fell $1.48, or 3.9 percent, to $36.41.
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