Clean Energy Fuels Should Continue Improving

Aug.26.14 | About: Clean Energy (CLNE)


Clean Energy Fuels is seeing rapid growth in gallons delivered, which indicates that the consumption of natural gas as an alternative fuel is rising.

Clean Energy has been adding new clients and expanding relationships with existing ones at a solid pace.

Clean Energy, however, should be wary of the nascent fuel cell technology as it is also being adopted by corporate customers.

After being in a slump for most of the year, Clean Energy Fuels (NASDAQ:CLNE) is making a comeback. There was no doubting the company's long-term prospects, given the increasing usage of natural gas vehicles (NGVs) and Clean Energy's strong presence in key markets such as China and the U.S. Moreover, Clean Energy's latest results indicate the growing adoption of its services, as the company impressed the Street with its second-quarter numbers that topped consensus estimates.

An impressive performance

Clean Energy reported a 23% rise in gallons delivered to 64.8 million gallons from the year-ago quarter. Its revenue for the quarter rose 11.4% year-over-year to $98.1 million. Also, its EBITDA loss improved considerably to $4.7 million from $11.1 million last year. Going forward, analysts anticipate a 20% year-over-year rise in Clean Energy's revenue to $103.5 million for the ongoing quarter.

Hence, Clean Energy's growth is expected to accelerate going forward, and this is not surprising. Looking ahead, as more heavy duty trucks turn to compressed natural gas (CNG) as a source of fuel, Clean Energy's performance should improve.

New clients to drive growth

Looking at the pace of Clean Energy's growth, the company should be able to attain break-even on EBITDA soon. Moreover, Clean Energy is continuing to open new gas stations at a fast pace, tapping various highways like the Interstate 10 corridor, the Interstate 40 corridor, and others. Currently, it has around 100 stations to support the growing demand for natural gas fuel, and management will continue building more to increase its addressable market.

Clean Energy's customer base is also increasing. In addition to its existing customers, Clean Energy has penned a deal with Chavez Trucking for a multi-year fueling agreement to fuel their fleet of LNG trucks. It is expected that this fleet would consume around 240,000 gallons annually. Along with this, Clean Energy signed a CNG fueling agreement with one of the nation's largest truck leasing companies. Under this deal, the trucking company will fuel its leased and rental fleets at Clean Energy's stations across states.

In Sacramento, Clean Energy has signed an agreement with Paratransit, which has around 200 small gasoline buses that it plans to replace with CNG. All these buses will be fueled at a public CNG station on Paratransit's property. This is good news for Clean Energy, as it has bagged the contract to design, build, own, and operate this station. These were only some of the new additions during the quarter. Moreover, many of its existing customers, such as UPS (NYSE:UPS), have increased the size of their fleet, which will boost its revenue in the days ahead.

Apart from its trucking customers, Clean Energy is making good progress with Waste Management (NYSE:WM). Waste Management's transition to natural gas refuse trucks, which began in 1990 with only seven trucks, has reached 3,000 today. This is an important milestone for both companies, and they are looking forward to continue this partnership in the coming months. Similarly, Clean Energy has other customers in this segment, such as Republic Services Group and All American Waste.

Increasing usage of gas is a boon for Clean Energy

CNG is now extensively used in many transportation modes, such as public transportation, airport towing, etc. One of Clean Energy's customers in Las Vegas, Bell Transportation, launched 83 new CNG taxis and 10 new CNG buses during the quarter. In addition, Airport Mobil Towing ordered 23 new CNG tow trucks, along with the nine it already has.

Construction is another segment Clean Energy is targeting. It has signed two deals, one with Delaware Valley Concrete and the other with Schwartz Ready-Mix. It also plans to enter into a joint venture with Mansfield Energy to focus on the bulk fuel hauling truck market. These trends clearly indicate that Clean Energy's addressable market is growing as NGVs are finding more traction.


Investors, however, should not ignore the risks that Clean Energy is facing. A look at the company's balance sheet reveals a debt of $626 million, way higher than its cash position of $276 million. As a result, Clean Energy's bottom line might remain under pressure due to rising interest costs. In addition, the rise of fuel cell players such as Plug Power (NASDAQ:PLUG) is another point of concern. As I mentioned in a previous article:

"The likes of Wal-Mart (NYSE:WMT), Sysco (NYSE:SYY), and Procter & Gamble (NYSE:PG) are increasingly adopting fuel cell-based vehicles from Plug Power.

Recently, Wal-Mart ordered 1,700 GenDrive units from Plug Power for deployment at six sites. In addition, Kroger is also planning to deploy Plug Power's GenKey solution at two of its sites later this year. Moreover, Plug Power will also begin constructing the GenFuel infrastructure at Volkswagen's (OTCQX:VLKAY) Chattanooga, Tennessee, plant in the near future. Volkswagen will start with 45 GenDrive-powered lift trucks, and this number is expected to increase substantially going forward."

As a result, Clean Energy will need to focus on these two risks going forward, or its bottom line might continue remaining under pressure.


With the CNG and LNG market expanding, Clean Energy's prospects are improving as the company is landing new contracts. Also, Clean Energy has significantly improved its EBITDA loss, and expects to break even in the near future. Its latest results point that Clean Energy is moving in the right direction, and investors should consider making the most of the company's weak performance in 2014 to add more shares to their portfolio.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.