Barclays on U.S. Independent Refiners: Ethanol Tax Rebate
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Rating Summary:
21 Buy, 8 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 11 | New: 14
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Barclays on U.S. Independent Refiners: Ethanol Tax Rebate
Barclays analyst, Paul Y. Cheng, said, "In light of the current buzzwords about deficit reduction in Washington, DC, we think it is reasonable to assume the current ethanol tax rebate of $0.45/gallon blender credit will be unlikely to survive in its current form. However, we do not believe the tax rebate will be eliminated totally in 2012 given the powerful support from the farm lobby group as well as the current relatively low crush margin for the ethanol producers. We expect a lot of backroom negotiating over the next several months before a final deal will likely emerge."
"In our view, the most likely scenario will be a gradual phase out of the tax rebate combined with an oil price trigger level. We expect the 2012 tax rebate may fall to $0.30-$0.40/gallon from currently $0.45/gallon and previously $0.51/gallon. Moreover, in return for agreeing to a reduction of the tax rebate rate, we think the farm/ethanol lobby groups will likely seek the following: (1) an acceleration of the ramp-up pace of the existing ethanol blending requirement and (2) ask Congress to pass a law to waive the ethanol blenders' product liability in adopting E15. However, we believe it is premature to speculate on the shape of the final bill. That said, we think it will likely be a slight negative to the refiners, which could experience a negative EPS hit."
"Among the refiners, Valero (NYSE: VLO) could potentially experience the biggest negative impact, in our view, given its dual role as one of the largest ethanol producers as well as one of the largest ethanol blenders..."
Other companies in the sector include: Tesoro Corporation (NYSE: TSO), Western Refining (NYSE: WNR), Frontier Oil (NYSE: FTO), and Holly Corporation (NYSE: HOC)
Barclays analyst, Paul Y. Cheng, said, "In light of the current buzzwords about deficit reduction in Washington, DC, we think it is reasonable to assume the current ethanol tax rebate of $0.45/gallon blender credit will be unlikely to survive in its current form. However, we do not believe the tax rebate will be eliminated totally in 2012 given the powerful support from the farm lobby group as well as the current relatively low crush margin for the ethanol producers. We expect a lot of backroom negotiating over the next several months before a final deal will likely emerge."
"In our view, the most likely scenario will be a gradual phase out of the tax rebate combined with an oil price trigger level. We expect the 2012 tax rebate may fall to $0.30-$0.40/gallon from currently $0.45/gallon and previously $0.51/gallon. Moreover, in return for agreeing to a reduction of the tax rebate rate, we think the farm/ethanol lobby groups will likely seek the following: (1) an acceleration of the ramp-up pace of the existing ethanol blending requirement and (2) ask Congress to pass a law to waive the ethanol blenders' product liability in adopting E15. However, we believe it is premature to speculate on the shape of the final bill. That said, we think it will likely be a slight negative to the refiners, which could experience a negative EPS hit."
"Among the refiners, Valero (NYSE: VLO) could potentially experience the biggest negative impact, in our view, given its dual role as one of the largest ethanol producers as well as one of the largest ethanol blenders..."
Other companies in the sector include: Tesoro Corporation (NYSE: TSO), Western Refining (NYSE: WNR), Frontier Oil (NYSE: FTO), and Holly Corporation (NYSE: HOC)
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