VeraSun Energy: A Growth Stock Reborn

VeraSun Energy (VSE), the country’s largest ethanol producer managed to handily beat the analysts' estimates for the 2nd quarter of 2008. Estimates for the quarter’s per share earnings ranged from a -7¢ to a positive 12¢, with the average of 18 analysts at 2¢ earnings. Actual earnings came in at 15¢ per share, well above the average and handily beating the most optimistic. The 15¢ per share also almost doubles the 8¢ earned in Q1, 2008. VSE’s total revenues of $1.015 billion also exceeded the average estimate of $924 million.

The most interesting point of the press release is that VeraSun sold 330 million gallons of ethanol to its customers which included 83.4 million gallons it purchased from other producers to resell. There is obviously plenty of demand for the company’s future increasing production. Company management has stated it has very little margin in the resold fuel, but wants to keep its customers supplied and satisfied.

I look forward to the conference call to compare average corn and ethanol prices to those reported by Pacific Ethanol (PEIX) leading to its quarterly loss. With revenues growing strongly and earnings per share doubling for each of the last two quarters, I believe VSE is a growth stock reborn.

Note: Analyst information from Yahoo Finance.

Note: I have a long position in VSE.

Comments

[Dag:]

What about those margins? no leverage in buisness, and when production is up to speed by the end of the yer I doubt we will se continue earnings growth because problem is mixing capabilities in the US, hence ethanol will continue to be undervalued and margins depressed

2008 Aug 12 04:34 AM

[Pipo:]

Ethanol probably will not be an alternative to oil. These ethanol stocks may even disappear in a few years.

2008 Aug 12 05:35 AM

[Tim Plaehn:]

D-man, I agree, the company's revenue growth will plateau sometime late next year. In the mean time there is room for increasing production, expense reduction and better spreads. I think the stock will benefit over the next 5-6 quarters.

2008 Aug 12 09:29 AM

[nelsb@centu...:]

What will happen to Ethanol when the subsidies cease ? A viable alternate energy source has to stand on its own two feet and be ost effective withiut any crutches,

Yalmer

2008 Aug 12 12:14 PM

[coursonc:]

Here is what I see: E production is on the rise, with VSE currently idling two plants, Welcome, Hartley,and Dyersville, Hankinson just started, and Janesville set for next qtr, so its obvious that E volume growth is continuing. They are just starting the corn oil production, and just seeing some of the synergies of the merger with USBE also, so I see continued effeciancys of scale that are yet to be realized to full capacity. Meanwhile, the UL has pending certification of higher blend equipment and blendpumps that the retail arena is awaiting to install that will blow the lid off higher use of E, removing the "blend wall" concerns, or fear of "glut' of product, especially in this high oil enviroment. There may be a slight pricing discount that comes with selling E in blends higher than E30, as the consumer will be sensitive to the inherently lower energy density of E as compared to gasoline, as the burning effeciancy due to the higher oxygenate, as a lower blend is lost, at higher blend ratios. Rapid adoption of higher blends, namely E85 thru the mandate of 100% flexfuel vehicles like McCain wants, will push the growth envelope much higher than the RFA mandates. Recent denial of Tx Gov Perry request to reduce the mandate to 4.5 from 9.0 by Johnson, just shows the EPA stance on E as a partial solution to US reliance on foreign oil for transportation needs. E is here to stay. Goodbye Chavez, and your OPEC terroist buddys. Deal with it. coursonc

2008 Aug 12 07:11 PM

[Halp:]

In the very near future you will see greater number of ethanol stations that pass on the blenders credit on to the customer who is filling his own tank.
Wisconsin has quite a few of these (type stations) already and the number is growing. Hip hip hooray!
Take a look at the price of gasoline, E-30 or E-85 at the (no frills) RENEW filling stations as compared to the big oil boys.

Its direct, immediate relief to the average guy going to work...even with the drop off in MPG

That state of Wisconsin currently has an attractive grant program for companies looking to install ethanol capable fuel tanks.

It'll be a little more time but we will be saying farwell to you know who!

2008 Aug 13 08:01 AM

[wheels14:]

Dear Yalmer,

The subsidies are paid to the refiners and blenders. As long as the mandate remains, the subsidies could go away without hurting the ethanol producers.

2008 Aug 13 03:03 PM