Bush proposals may aid ethanol producers

Bush proposals may aid ethanol producers

	Published : Wed, 24 Jan 2007 15:29 By : Agencies Print this Story

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Ethanol producers and health care service providers are among the potential corporate beneficiaries of policies proposed by President Bush, while domestic automakers and oil companies could get slightly stung.

The winners and losers will be more apparent in the months ahead, as the Democrat-controlled Congress responds to the president's State of the Union speech, though economists said they expect few drastic changes in Washington between now and the 2008 election. In this scenario, the status quo prevails -- a trend Wall Street tends to prefer.

'The business community is quite skeptical that much, if anything, will be produced out of the Congress in the run-up to the 2008 presidential election year,' said Allen Sinai, chief global economist at Decision Economics Inc.

Sinai added that Bush's proposals on energy and health care, including a call for a tax deduction of $7,500 for individuals and $15,000 for families regardless of whether they buy their own health insurance or receive medical coverage at work, were not overly ambitious.

But Archer-Daniels-Midland Co., along with US BioEnergy Corp., VeraSun Energy Corp. and other ethanol producers nevertheless stand to benefit from Bush's call to raise consumption targets for ethanol and other alternative fuels to 35 billion gallons by 2017. More than 5 billion gallons were produced in the U.S. in 2006. The long-term technological challenge, experts say, will be finding inexpensive ways to use feedstocks other than corn to meet the higher targets.

Some ethanol stocks were down in pre-market activity Wednesday. Archer-Daniels-Midland dipped 53 cents to $32.10, after adding 81 cents to close at $32.63 on Tuesday, and Pacific Ethanol slid 49 cents, or 2.8 percent, to $17.36 after adding $1.03 to close at $17.85 Tuesday.

Traditional energy companies will have their 'antennae up' to monitor the progress of Bush's alternative energy proposals, Sinai said.

Automakers said they were open to the president's goals of increasing fuel economy standards.

The proposal could benefit Japanese automakers such as Toyota Motor Corp. and Honda Motor Co., which have higher fleetwide fuel economy levels than domestic manufacturers. The proposal also includes a system of trading or 'banking' credits to meet new standards, which could lead to Detroit's automakers buying fuel credits from Toyota and Honda.

But GM and Ford Motor Co. have pledged to build two million flexible-fuel vehicles by 2010, so they too could benefit by an influx of ethanol and other renewable fuels. GM said it wanted to ensure, however, 'that any fuel economy increases are technically achievable and do not compromise safety, performance, or limit consumer choice.'

Energy analysts said the call for a sharp escalation in the use of ethanol will have little immediate impact on major oil companies, such as Irving, Texas-based Exxon Mobil Corp. and San Ramon, Calif.-based Chevron Corp., primarily because it'll be used as a partial substitute and not a replacement for gasoline.

In a research note before the speech, Citigroup analyst Doug Leggate called Bush's plan to cut gasoline consumption by 20 percent by 2017 'a huge target, and one where a reality check may be necessary to determine if this is really achievable.'

The health care taxation plan is the most appealing to the private sector, analysts said. Specifically, the second part of the provision that would curb health care spending by taxing any expenses over the $7,500 and $15,000 marks, and could drive many Americans to the individual-oriented plans offered by UnitedHealth Group Inc., Wellpoint Inc. and Aetna Inc.

WellPoint and Aetna slid in pre-market trading. WellPoint dipped 88 cents to $76.15 after adding 22 cents to end at $77.03 on Tuesday and Aetna dipped 18 cents to $42 the morning after it closed up 39 cents at $42.18.

The health proposal also would encourage middle- to lower-income individuals to opt for hospital care instead of avoiding visits that formerly would have required out-of-pocket expenses, said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants.

Employers, including automakers, would welcome the plan since benefit costs, not wages, continue to hinder their bottom lines, said Brian Bethune, U.S. economist at Global Insight in Lexington, Mass.

That's good news for hospital operators like Triad Hospitals Inc. and Health Management Associates Inc., and General Motors Corp., the nation's largest private provider of health care.

And the potential health care benefits should outweigh the hit domestic automakers would take if Bush is successful in raising fuel economy standards for passenger cars, economists said.

The president devoted roughly 20 minutes of his speech to the global war on terror, with seven of those minutes spent on Iraq.

The defense industry outlook is dictated primarily by policies in Iraq and Bush's recent call to increase U.S. troops there by 21,500 elicited fierce opposition on Capitol Hill, Nomura's Resler said.

But since Bush's troop announcement on Jan. 10, the stock prices of defense contractors like Hartford, Conn.-based United Technologies, Los Angeles-based Northrop Grumman Corp. and Bethesda, Md.-based Lockheed Martin Corp., are up.

The Defense Department is expected to submit its fiscal year 2008 budget request to Congress for approval next month with initial estimates suggesting it could reach more than $600 billion, which could further bolster defense companies' shares.

AP Business Writers John Porretto in Houston, and Donna Borak, Matthew Perrone and Ken Thomas in Washington, contributed to this report.