Can the Imperial Sugar Company make a comeback?

Imperial Sugar Company  (Public, NASDAQ:IPSU) is at $16 a share and less than $1 away from a 52 week low. In February their Georgia refinery was destroyed by an explosion that claimed 13 lives and there are looming questions about how much the incident will cost the company.  A month earlier they posted a lower Q1 profit and their stock continues to push lower and lower.  With all the bad news, is there hope for their future?

To make matters worse, the source of Imperial's income is also at stake. Sugar prices last peaked in 2006 and there’s plenty of sugar available globally now and supply is expanding. 

Last month, Stefan Uhlenbrock, a senior researcher at German analyst firm F.O. Lichtthat, forecasts that world sugar stockpiles will rise to 87.2 million metric tons, or 56.4% of annual world consumption at the end of September, from 75.1 million metric tons, or 49.8%, a year earlier, forecast analyst. 

“There's a surplus that cannot be absorbed,'' Uhlenbrock says at a seminar in Sao Paulo, Brazil. Upshot: “Surplus stocks will continue to rise.” 

World sugar prices published by the U.S. Department of Agriculture shows that early-2008 prices are averaging just under 16¢/lb, up from the 2007 average of 14¢ but still below the record-high 19¢ price of 2006.

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So how can Imperial Sugar Company (NASDAQ:IPSU) break the down cycle?

For now, they can't.

The Masters are betting this stock will hit a new 52-week low in the coming weeks and may not stop falling until Summer.

Last month BWS Financial analyst Hamed Khorsand said in regard to the Georgia refinery incident that the business interruption part of the policies may not cover the entire amount Imperial Sugar would have made had the explosion not occurred.

Costs from ongoing operations and planning could prevent Imperial Sugar from reporting a profit, said Khorsand, who rates the shares "Sell" with a $9 price target.

Imperial Sugar makes for a perfect short and once the tide turns on the sugar market, it will be time to ride the bull.

Imperial Sugar Company will survive, but it's going to be a tough 2008.  Thanks to the global strain on commodities, sugar will feel the strain.  Food prices are soaring all over the world.  The perfect storm will hit Imperial later in the year for investors; increase in sugar prices and demand combined with a 52-week low share price. 

Short play now, long play later.

Disclaimer: The author has no positions in IPSU.