VeraSun's Far From Done

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To paraphrase Mark Twain, reports of ethanol's death have been greatly exaggerated. Sure, VeraSun Energy (NYSE: VSE) hit a fresh 52-week low yesterday, but things don't look that grim for this formidable fuel furnisher.

The growth factor is certainly there. VeraSun reported a 113% spike in quarterly sales, while revenue for the full year ramped over 52%. Sagging ethanol prices -- down 9% for the year on average -- were no help, but VeraSun’s capacity additions were ample. Upon consummation of the firm's merger with US BioEnergy (Nasdaq: USBE), expected at the end of the month, VeraSun will be one of the true giants of the industry.

Size does indeed matter here. VeraSun has already demonstrated scale efficiencies, visible in various financial metrics. The firm's EBITDA margin for the year bested just about every conceivable comparable company, from Archer DanielsMidland (NYSE: ADM) to Valero Energy (NYSE: VLO). Then there's SG&A (selling, general, and administrative expenses) per gallon, a reasonable measure of an ethanol firm's organizational leanness. VeraSun whittled this figure nearly in half from the final quarter of 2006 to this most recent quarter.

Another element of efficiency, to take a longer view, is crop yield. Gene genie Monsanto (NYSE: MON) predicts a doubling of corn bushels per acre by 2030. Assuming a fixed level of non-ethanol demand, VeraSun estimates that this scientific advance will increase total bushels available for ethanol nearly fivefold. Importantly, that's without any increase in currently planted acreage.

Also critical is that VeraSun has no apparent liquidity issues standing in the way of its expansion. Recall that Aventine Renewable Energy (NYSE: AVR), with a fistful of frozen auction-rate securities, is stymied. I have no idea if these recently unmarketable securities are the cause of Pacific Ethanol's (Nasdaq: PEIX) recent reporting delay. We do know that VeraSun reported that out of $43 million in auction rates, it was able to unload $40 million at face value. Bravo to them for astutely managing shareholder money.

Related Foolishness:

• Check out this Chinese biofuels behemoth.
• Innovation abounds in the space, but doubters remain.
• Meanwhile, Monsanto has been rounding up growth.