VeraSun Shares Down

July 25, 2006

NEW YORK — Morgan Stanley initiated coverage of ethanol producer VeraSun Energy Corp. (NYSE: VSE) Monday with a mostly positive note that noted drought conditions in the Midwest could drive up prices of corn, the main ingredient in ethanol.

Ethanol is a type of alcohol derived from corn that can be blended with gasoline and used as automotive fuel.

Verasun fell 69 cents, or 2.9 percent, to $23.26 on the New York Stock Exchange. The stock began trading June 14 at $23 per share and rose 4 percent since then.

Morgan Stanley analyst Eric Pipa initiated coverage of the company with an “Equal Weight” rating and a $27 target price in a client note. The analyst said the company has a low-cost business model, strong management and a viable expansion plan.

But Pipa wrote that drought conditions in the Midwest _ the corn belt _ could result in higher prices for the Brookings, S.D.-based VeraSun.

In addition, the analyst warned that ethanol production capacity could outpace demand growth in the intermediate-term. And if a 54-cent-per-gallon tariff on ethanol imported from Brazil is not renewed after its October 2007 expiration, U.S. prices could be pressured, Pipa said.

Source: Yahoo

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