The promise of a national natural gas highway continues to be a money-losing ordeal for Clean Energy Fuels Corp. (CLNE). The company reports Q4 2012 earnings on February 28th and analysts have become increasingly bearish over the last few weeks. A big concern with the stock remains that the company has been unable to establish a large market while the natural gas fuel is extremely cheap.
Per the company, it is the largest provider of natural gas fuel for transportation in North America and a global leader in the expanding natural gas vehicle fueling market.
A key component to the Q4 earnings report will be an update on the natural gas highway and the natural gas engines being built to support the use of the highway by long-haul trucking industry.
National Highway Update
Back in early December, the company announced the completion of the first stage of the America's Natural Gas Highway, a network of liquefied natural gas (LNG) truck fueling stations to support long-haul, heavy duty goods movement along major interstate corridors throughout the United States.
At the end of 2012, the company had completed 70 new LNG stations along highways that link major U.S. metropolitan areas. Since the company hasn't provided any more official highway updates, any updates on the Q4 earnings release and subsequent conference call will be key. Remember that the company may have completed 70 stations by year's end, but the company was clear on the Q3 call that a majority of stations won't immediately open due to a lack of demand.
The main issue continues to be that the new engines aren't ready yet. The important Cummins (CMI) - Westport Innovations (WPRT) engine won't hit production until April as confirmed by Cummins in the recent earnings call. While mostly on schedule, the fact that full production of the engine line won't hit until August could become painful to Clean Energy shareholders.
While the highway was needed in order to create demand in order to build natural gas engines, it doesn't mean that investors in the developer of the highway will benefit.
Another concern is that Chesapeake Energy (CHK) had become a partner with the company on the highway. The former CEO Aubrey McClendon, supported the push for the natural gas highway by helping fund it via a $150M investment back in July 2011. While the company may already be locked into funding the concept, the new management team may not be as supportive. The original deal involved the third tranche closing in July of 2013. Since one can all but guess that the company will cut back financial support for side projects, the third tranche and definitely further support will be in doubt.
Earnings Estimates Plunging
While losing money at this stage of the development of a new concept isn't necessarily a bad thing, the real issue exists when a company loses more money than expected. Another issue is when a company loses more money than the previous year. Eventually investors will lose faith that the concept will ever pay off.
Analysts originally expected Clean Energy to only lose $0.15 in Q4 2012 yet the estimates have plunged in the last few weeks to a loss of $0.22. The company only lost $0.21 in Q4 2011. This now means that the 2012 estimate is for a loss of $0.72, which greatly exceeds the $0.47 loss of 2011.
Table - Clean Energy EPS Trends
The stock remains in a tight pattern in the $13 range. For the better part of 6 months, it has traded virtually between $13 and $14. If the stock was to break above the 200ema at $13.68, investors might want to jump aboard for a possible break higher. While a debate exists on whether the stock will ever benefit from the building of America's Natural Gas Highway, if traders are convinced, the stock could eventually soar back to $24 like it did at the beginning of 2012. See the 16 month chart below:
Nothing has changed from the last quarter for Clean Energy. As highlighted in the Q3 earnings summary, the company continues to build out the natural gas highway while bleeding too much cash. Investors will continue to be concerned that it is on the bleeding edge and may not realize the benefits of building out the network.
The keys to the Q4 earnings report will be whether the company has been successful with building out the network and more importantly opening new stations without the Cummins-Westport engine. Any signs that ultimate success depends on an engine that won't hit full production until the fall of this year could pressure the stock. It might not need Chesapeake as a partner, but the lack of this new engine could be damaging to existing investors.
Analysts have become more bullish on Q1 2013 earnings estimates. If that turns out to be an accurate reflection of the year, the stock could rally. Investors need to keep in mind that the forecasted $0.58 loss in 2013 exceeds the $0.47 loss back in 2011. Not many stocks in the history of the stock market have performed well when the company continues to lose larger amounts of money.
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