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Summary

  • Clean Energy Fuels is trading close to its 52-week lows as its results have been declining.
  • But prospects in the natural gas industry are strong and Clean Energy can initiate a turnaround with its first-quarter report.
  • The growth in application of natural gas in trucking and Clean Energy's partnership with Westport are long-term growth drivers.

Natural gas provider Clean Energy Fuels (NASDAQ:CLNE) is having a rough time this year. The stock has lost more than 30% of its value so far. Moreover, the company's last-reported fourth-quarter results had failed to meet analysts' estimates. Currently, the stock is trading near its 52-week low, so things are looking quite grim for Clean Energy. However, considering the progress that the company is making in its business and also the fact that Westport Innovations' (NASDAQ:WPRT) natural gas engines are gaining momentum, Clean Energy can rebound.

Clean Energy will have an opportunity to showcase its strength when it reports its first-quarter results on May 8 and initiate a turn around. Let's see what's expected of the company and if it is a good buy for the long run.

The targets to meet

Analysts, according to Yahoo! Finance, expect Clean Energy to report revenue of $90.10 million. This would be a decline of 3.20% from the year-ago quarter. In addition, its earnings are expected to drop from $0.03 per share a year ago to a whopping loss of $0.29 per share. So, Clean Energy's performance is expected to take a hit once again in the first quarter.

The company had posted woeful results in the fourth quarter as well. Revenue for the fourth quarter had declined to $85 million from the year ago period's revenue of $99.1million, which also included $22.7 million in revenue from the sale of two large CNG stations. But if we exclude this one time gain, revenue for the fourth quarter had risen considerably. So, all is not bad for Clean Energy, even though the company's vital metrics are expected to decline considerably.

Also, with the increasing usage of natural gas as a source of fuel, it is possible that Clean Energy may start seeing profits in the due course of time. As such, we need to take a close look at its long-term prospects and see if it is a good investment.

The prospects

We have already seen that the numbers are against Clean Energy Fuels. But management sees 2014 as an important year as the heavy-duty trucking industry is shifting to natural gas. In addition, Clean Energy has taken significant steps to build its fueling infrastructure and established relationships with new customers, while also strengthening its existing customer base. Consequently, Clean Energy expects to capture the large trucking market, along with expanding its existing market position in the natural gas markets of refuse, transit, and airports.

Last year, the heavy duty trucking industry began its transition to natural gas, with the introduction of the Cummins Westport 12 liter engine. Although the engine is in its initial stages, it has already received several orders. For example, natural gas trucking companies all over the U.S., such as UPS, are placing orders ranging from a few test natural gas heavy-duty trucks to several hundred trucks.

Why Westport is key to Clean Energy's prospects

Moreover, Clean Energy's prospects should receive a shot in the arm due to Westport Innovations' strategic moves. Westport is investing extensively in technology and product development along with its partners as the company is trying to create a sustainable, competitive position in the alternative fuels market.

Since the market for natural gas vehicles is expected to expand in the future, Westport might become the leading partner for OEMs as they launch new natural gas-driven vehicles. So, the growth in the number of engines sold by Westport should ideally result in a jump in Clean Energy Fuels' addressable market because it sells fuel for such engines.

Moreover, Westport is growing at a terrific rate. In the recently reported first quarter, its net loss declined to $23.9 million from $31.8 million in the year-ago period. Also, Westport's revenue grew 39% to $41.9 million from $30.1 million year over year. Hence, Westport's solid improvements are an indicator of the prospects of the natural gas trucking industry, and signify better times for Clean Energy ahead.

End-market prospects

According to management, demand for natural gas vehicles is increasing at a much faster pace in other parts of the world than in the U.S. Consequently, Clean Energy is busy securing deals with foreign partners in Russia and China. In addition to this, the company has sold its compressors in Australia, Vietnam, Turkey, Israel, and Mexico, signifying its global presence.

Clean Energy's core business is also witnessing good growth with its customers expanding their CNG fleet considerably. It has completed a new station for LA Metro Transit, which is one of its long time customers, and signed a ten year operation & maintenance contract with them. This will allow Clean Energy to continue its operations on all ten of their CNG bus fueling stations. The company has received similar contracts from other customers as well.

Natural gas vehicles have also seen considerable penetration in refuse trucks. Clean Energy's refuse market has grown over 30% by volume and is expanding geographically as well. The company landed a contract with Lancaster County Solid Waste Authority in Pennsylvania to build and operate a station for their fleet. Also, Republic Services has added 485 new trucks and 9 new CNG stations, which were built by Clean Energy. These are just a few wins and the list continues with many other contracts won by the company.

Clean Energy is extremely focused on expanding its list of trucking customers. In a bid to support the trucking industry's transition to natural gas, the company has announced a strategic alliance with GE's transportation finance unit. This will help its potential customers to offset the upfront cost of transitioning natural gas trucks by offering a fair market value lease and a fuel rebate program. With all these mega deals going, on management has a positive outlook for the future.

Conclusion

Clean Energy is currently trading close to its 52-week lows. The company is having a difficult time on account of weak results. However, the prospects in the natural gas industry look quite positive and Clean Energy's expected earnings growth rate for the next five years signifies the same. According to analysts, Clean Energy's earnings are expected to grow at a CAGR of 25% for the next five years. So, the company is a good long-term prospects and investors should look beyond the upcoming earnings.

Source: Can Clean Energy Fuels Bounce Back?