A week ago, many of the major new agencies were calling for the end of the ethanol boom. Here are stories from the Wall Street Journal, CNN Money, and the New York Times. VeraSun’s stock (VSE), already on a downward slide, slid harder to a low close of $10.01 on Oct 3, 2007. Today the stock closed at $12.12, a nice 20% move in the last week.
I am spending the week with family in southern Minnesota, and have visited with relative in nearby Iowa, and the corn harvest is going very well this year. As a result, corn prices are already falling, even though many of the fields around here (SE Minnesota) have not been harvested yet. When we went 100 miles south and west into Iowa last weekend, more of the crop was already in.
In regards to VSE, earnings for Q3 are due out early in November, and estimates range from 6 to 32 cents, with the mean at $.19. For all of 2008 the spread is $.50 to $1.50. This is a huge spread and positive surprises should be great for the stock. Total earnings for 2007 are projected to come in around $.45, so the company has the opportunity to show some nice growth if they do anywhere above 08’s minimum.
The ethanol industry is reaching a stage where it is ripe for consolidation. Throughout the midwest there are numerous farmer and co-op owned ethanol plants. These relatively small operations should be ready to sell out if ethanol prices remain soft. The original farmer/investors have done very well already and will not want to stay in marginally profitable plants. VeraSun Energy, as one of the largest pure play ethanol companies, has an opportunity to grow their share of the ethanol pie. I have written in the past on my regard for the company’s business plans.