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Anup Singh
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3 Reasons Why Clean Energy Fuels' Pullback Is A Buying Opportunity
May. 22, 2014 1:57 PM ET | 6 comments | About: Clean Energy Fuels Corp. (CLNE), Includes: WPRT
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
Clean Energy Fuels' stock price is down this year, but its financial performance has been terrific.
Clean Energy has invested aggressively in infrastructure to benefit from the growth of the natural gas trucking market.
Westport Innovations' product development moves will strengthen Clean Energy's prospects.
Clean Energy's expected earnings growth is also quite impressive, making it a good long-term buy.
Natural gas provider Clean Energy Fuels (CLNE) is on the comeback trail after posting solid first-quarter results. The stock was down more than 30% in 2014, but a terrific performance in the first quarter has sent Clean Energy's shares up by almost 9% since the results were declared on May 8. However, Clean Energy Fuels always looked like a good bet since the company is plying its trade in the fast growing natural gas market and is well-positioned to benefit from Westport Innovations' (WPRT) natural gas engines.
The rise in Clean Energy's stock price is not surprising, as revenue for the first quarter increased 43% to $95.3 million as compared to last year's $66.8 million. This was above analysts' estimate of $89.95 million. Also, Clean Energy reported a loss of $0.30 per share, which was in line with consensus estimates. The company reported 59.3 million gallons delivered in the quarter as compared to last year's 49.9 million gallons, an increase of 24%.
These results, no doubt, are quite fantastic. However, Clean Energy looks set to get even better going forward. Moreover, since the stock is down around 25% this year, investors should definitely consider capitalizing on Clean Energy's drop to add more shares. Let's see why.
Smart investments should drive growth
Clean Energy has been building its fueling infrastructure and in-house capabilities over the past couple of years in anticipation of a 12 liter natural gas engine coming to the market, leading to an increase in demand. This decision has turned out to be right as today Clean Energy has 96 truck-friendly fueling stations open, which is four times of what its closest competitor has.
The release of the Cummins Westport 12 liter engine will act as a catalyst for the heavy-duty trucking industry, which will begin its transition to natural gas fueling. As stated by Seeking Alpha writer, Michael Fitzsimmons --
Cummins Inc. (CMI) recently announced its new ISX12-G engine, a 12-liter natural gas engine that delivers 400 horsepower and 1450 ft-lb of torque. It can run on either compressed ("CNG") or liquid ("LNG") natural gas and meets all 2013 U.S. Environmental Protection Agency (EPA) and California Air Resource Board emission standards. It also meets 2014 EPA and U.S. Department of Transportation fuel economy and greenhouse gases regulations. This is the engine the long-haul trucking sector has waited for and it is an absolute game changer. The engine is a strong catalyst for Cummins and should power the stock 25% higher over the next 12 months.
Kenworth has already delivered its first truck based on the new ISX12-G engine.
Moreover, executives from Kenworth, Volvo (OTCPK:VOLVY), Mack, and Freightliner have reported good results about the sales and performance of the 12 liter engine. This is indeed a positive sign for Clean Energy.
Westport's moves are catalysts for Clean Energy
Additionally, Clean Energy could also see a boost in its prospects from the moves of Westport Innovations. Westport and Cummins are in a joint venture to develop natural gas engines, and the 12 liter engine is a result of their collaboration. Also, Westport itself is looking to increase the reach of natural gas engines. As such, the company entered into a partnership with Indian auto company Tata Motors (TTM) and launched its new spark-ignited natural gas 3.8L turbocharged engine featuring the Westport WP580 Engine Management System (EMS).
Since Westport's system is able to support different engine configurations, the Westport WP580 EMS will also be used in Tata's 5.7L engine that targets medium-duty applications in late 2014. This is a smart move on Westport's part, as according to a Tata Motors executive --
India has one of the largest natural gas light-duty vehicle fleets in the world, and we see an enormous opportunity for natural gas trucks and buses with the development of fueling infrastructure.
Westport's press release goes on to state that --
The US Energy Information Administration (EIA) indicates that India is the fourth largest energy consumer in the world. Vehicles are the country's second-largest consumer of energy (18%) after industry (42%), according to Thomson Reuters Foundation, and rising vehicle numbers and fuel prices have implications both for India's economy and its energy security. Westport believes that the adoption of natural gas as a transportation fuel will help reduce India's dependence on petroleum to meet the country's energy demand and improve local air quality challenges. Building upon Westport's natural gas components and aftermarket business in India, Westport is now establishing its OEM footprint with Tata Motors.
Hence, given the positive trends in the natural gas trucking market, Clean Energy's future looks bright and the company is undertaking a number of moves to make the most of it.
Focus on infrastructure
Clean Energy has already deployed capital to build its infrastructure base. Clean Energy has also made some strategic partnerships to boost its numbers. Management has reported that Kroger (KR), which is the country's largest grocery retailer, has partnered with Clean Energy as it transitions its fleet to natural gas. Kroger has placed orders for its first 40 LNG trucks, which will be fueled at Clean Energy gas stations.
Clean Energy has also win a contract for the operation and maintenance of four CNG stations it had built for Dallas Area Rapid Transit (DART). These stations have fueled over 1.3 million gallons in the first quarter of this year. Currently, DART is operating 186 CNG buses and 112 light-duty CNG vehicles. It is expected to take delivery of another 185 CNG buses during the second quarter.
The company has undertaken various other multinational contracts such as the building of a LNG station and supplying LNG fuel for Anaheim Resort Transit. In the east, it has completed the construction of a CNG station for the Hillsborough Area Regional Transit in Tampa, Florida. In Canada, it has completed and commenced operations of BC Transit to the new CNG station in the Nanaimo, British Columbia. Apart from this, Clean Energy has many other customers and is continuously adding to its fleet.
Conclusion
Since Clean Energy isn't profitable yet, it is difficult to value the company based on traditional metrics. However, analysts expect its earnings to grow at a terrific CAGR of 25% for the next five years. Clean Energy has various projects in the pipeline and is spending aggressively to build its infrastructure. As such, investors should definitely capitalize on Clean Energy's weak share price performance this year to add more shares to their portfolio.
