Clean Energy Fuels (CLNE) is showing improving fundamentals as the company's natural gas highway (ANGH) crosses the 50% milestone. The company saw its revenues improve by 26% year on year to $88 million, while losses decreased as the company's margins improved. The number of LNG engine powered vehicles is growing at an increasing pace which will help the company realize investments in building the LNG fuel stations. The company's CNG business is also doing well where the company occupies the No.1 position in the USA. While most of the major fleet owners and companies are still watching the LNG market, some like United Parcel Service (UPS), Procter and Gamble (PG) etc. have taken the plunge, with United Parcel Service ordering around ~1000 LNG trucks. Westport Innovations (WPRT) has introduced the new 12 liter engine for the trucking market which should give a strong boost to the NGV market. The company remains cheap with a stock price of ~$12 and should give good returns as the company starts to generate returns from its past investments.
Fundamentals are Improving
1) Topline growing strongly every quarter - CLNE has seen its topline grow almost every quarter as the company builds out more LNG stations and the number of LNG vehicles increase. The company's margins have also increased as the turnover of each station has increased. The company continues to maintain its leading position as a CNG supplier to garbage fleets, municipal and airport authorities. The company supplies fuel to 126 waste customers and has 75% market share in USA.
CLNE Revenue Quarterly data by YCharts
2) Gross Margin improvement - The company's gross margins improved not only due to improvement in gross profits per gallon but were also boosted by VTEC revenues. VTEC revenues are generated by CLNE due to the clean nature of its fuel as compared to normal gasoline. This sharply increased the gross profits by almost ~100% in 2013 as compared to the first half of 2012.
Our gross margin this quarter was $26.2 million, which compares to $21.3 million in 2012. For the first six months of 2013 our gross margin was $68.5 million, compared to $39.1 million. The gross margin for the second quarter and first six months of 2013, includes $6 million and $32.2 million of VETC revenues respectively. Our margin per gallon on our fuel sales this quarter was up $0.02 from last quarter to $0.30 per gallon.
Source - Seeking Alpha
3) Strong Partnership in different aspects of the business - Clean Energy Fuels has got strong partners in different parts of the business. This is important for a small company as it does not have the size to effectively scale up without large sums of money. The company is backed not only by General Electric (GE) but also by Boone Pickens which recently agreed to purchase $100 million of convertible notes from Chesapeake Energy (CHK). Note Chesapeake has been one of the strongest supporters of CLNE in the past and committed to funding CLNE's large capex requirement but has now reduced its role, given that CLNE has built out most of its network. The company has also agreed to a marketing alliance with WPRT under which the company will promote the usage of NG for vehicles. WPRT and CLNE have been strengthening their relationship in the last couple of years, as both the companies need each other for succeeding in the new LNG business. WPRT supplies the LNG engines for vehicles while CLNE supplies the fuel. Each would fail without the other. The company is also in talks with two major OEMs to start a joint marketing program which should further help grow the company's sales.
4) Crude Oil price rise helps CLNE - While most commodities have faced a bad 2013 with prices going down, crude oil has seen its price increase. The recent tensions in Syria and Egypt have made crude oil prices increase beyond the $110 point. This makes the economics of NG fuel even more attractive. In the USA, NG prices remain much below the rest of the world because of the shale gas revolution. As crude oil prices remain at an elevated level, fleet owners will accelerate the move towards NG fuel.
5) Climate Change legislation could prove to be a big catalyst - President Obama has made some noises of introducing climate change legislation in the second term after miserably failing to do anything regarding global warming in the first term. CLNE will benefit immensely with cleaner fuel standards, as NG emits much lower emissions than gasoline. Any boost for increasing NG as a transportation fuel in the USA can make CLNE's stock surge.
Clean Energy Fuels Risks
Clean Energy Fuels operate in a capex heavy business of building fuel stations and is only half way through its plan of building 150 LNG fuel stations. The concept of LNG fuel vehicles is still new in USA and it will take time for the new fuel to gain traction. The company is not expected to be profitable till 2015, when the network is fully built out and there are enough LNG vehicles fueling from these stations. Small companies are sometimes forced to severely dilute their shareholders if they run into liquidity issues. The company is also dependent heavily on WPRT to introduce new and better LNG engines for trucks. If WPRT fails to deliver, then its LNG fuel stations will lie idle.
Stock Performance and Valuation
Clean Energy Fuels stock has remained more or less flat in the last year as investors have remained on the sidelines waiting for the company's ANGH stations to start showing improved profitability. The stock price has remained stagnant at the ~$10-15 level without going anywhere. The company is not expensive with a P/S ratio of 3x and P/B ratio of 2x, with market capitalization of $1.1 billion. The valuation should improve as the company's revenue grows rapidly as the number of stations and LNG vehicles increase.
CLNE Total Return Price data by YCharts
Clean Energy Fuels is showing improvement every quarter, as the company's large investments in building out a network of LNG fuel stations across USA start to bear fruit. Though the company is not profitable, the business fundamentals continue to improve as more fleet customers look to convert their fleets to NG from gasoline. It is estimated that there is a fuel savings of ~40% on conversion to NG from gasoline, which is the main driver of CLNE's business model. The company remains well funded with ~$190 million in cash and has already built more than 50% of its targeted 150 ANGH stations with 24 more being constructed. WPRT has delivered the 12 liter engine on time and this will boost CLNE's prospect as the number of LNG powered vehicles increase. The company's stock has remained stagnant the $12 level for quite some time as the market waits for a catalyst. I would start buying the stock as the company continues to execute well on its story.