Shares of corn-based ethanol producers on Friday began rising after an early-session tumble brought on by worries over soaring corn costs and an expected wave of new ethanol capacity.
The intra-day recovery in several of ethanol stocks came despite corn for December delivery nudging the all-time high to $7.96 bushel on the Chicago Board of Trade before pulling back to trade at $7.875.
Goldman Sachs analyst Arjun N. Murti said he has "Sell" ratings on shares of Verasun Energy Corp., Pacific Ethanol Inc. and Aventine Renewable Energy Holdings Inc.
"With already tight corn markets now experiencing further upward price pressure due to the devastating floods and the next big ramp-up in ethanol capacity at hand, we believe ethanol equities will remain under pressure," he wrote in a client note.
The analyst cut his price target on Verasun to $3 from $4 and his price target on Aventine to $2.50 from $3.
Murti also characterized the balance sheets of Verasun, Pacific Ethanol and Aventine as "weak."
Officials from two of the companies were not immediately available for comment, but Les Nelson, director of investor relations for Aventine, said, "We respectfully disagree; we believe we have a strong balance sheet."
By midafternoon, shares of Verasun were up 15 cents, or 3.7 percent, to $4.19 and Aventine had gained 4 cents to $4.33. Pacific Ethanol, however, was down 15 cents, or 7.5 percent, to $1.85.
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