Aventine Renewable Energy are the Children of the Corn

Aventine Renewable Energy (AVR), a leading producer of ethanol fuel in the U.S. reported Q3 earnings yesterday. The result has sent the share price down more than 12% today. A quick recap of yesterday's earnings call consisted of the following:

- Aventine approved a $50 million share buyback and increased revenue by 57.1%
- Net income was $5.3 million and fully diluted EPS was $0.12.
- They recorded non-recurring pre-tax charges in the third quarter of 2006 totaling $15.1 million.
- Non-recurring charges reduced diluted earnings per share by $0.21 cents per share in the third quarter of 2006. Excluding the one-time charges, the company would have reported $0.33 a share.

The negative reaction is due to analysts expecting the company to earn $.46 per share, which is no where near the $.12 they reported. None the less, these guys are clearly are the Children of the Corn (perfect timing for the day after Halloween)

This is a great example of the type of situation we look for here at the Stockmasters. Investors have literally freaked out about one-time charges affecting one quarter. Much like the people of Gatlin when the children went on a massive killing spree (during the movie of course - No actual people were harmed during the publishing of this article). Look at the big picture and you see a different story. Net Revenue should increase to $2 Billion by next year. Sure, Aventine missed the quarter big time, but the long term perspective is as sweet as Colorado corn.

Consumption of North American ethanol is expected to double in the next 3 years. As of October 31, 2006, nameplate equity capacity for Aventine totaled 150 million gallons per year, and its marketing alliance partners had nameplate capacity of 520 million gallons per year, for a total current capacity of 670 million gallons. Aventine is currently constructing a 57 million gallon dry mill addition at their existing Pekin, IL facility. They have also announced additional projects with nameplate capacities totaling 550 million gallon, including the Aurora West project, and the Port of Indiana-Mt. Vernon. That adds up to a ton of corn, just like the amount of corn used during the filming of Children of the Corn III - Urban Harvest (it's great when you don't have to make this stuff up).

Another possibility that should be considered is the chance of an acquisition. It wouldn't be a surprise to see big oil companies like Exxon (XOM) or British Petroleum (BP) make a move towards ethanol, just for the PR factor. Besides, the rush for ethanol could spur another Children of the Corn movie, they only made eight of them. Just proving that corn has never been more popular.

.Article written by: Eric Cheshier
Article posted on: November 1st, 2006