Clean Energy Fuels Surprises Again; More Surprises To Come?

| About: Clean Energy (CLNE)

Summary

Margins jump despite low fuel prices.

Near-term catalysts may catapult both Clean Energy Fuels and Westport (WPRT).

Without catalysts, Clean Energy on cusp of sustained profitability.

The upshot for Clean Energy Fuels (NASDAQ:CLNE):

Third profitable quarter in a row.

Revenues increased by 24% year-over-year, and their gross margins increased by over 20%. That is a surprisingly large increase in margin from a year ago, when fuel prices were much higher. SG&A and Capital expenditures are down.

Strong station construction indicates that natural gas fueling is still spreading in popularity. Station construction will accelerate in the second half of the year substantially.

This quarter the company realized a 10.1 million dollar gain from its debt repayment. This is real money, but will likely not happen again next quarter, even though such gains have been realized the last two quarters.

So, without these gains, CLNE would have lost about 6 cents this quarter and about 13 cents in the previous quarter.

One can see that the increases in gross profits are real, and that at this pace, the company could see "permanent" or "consistent" profits by the end of the year. This would be another surprise, as I along with others were not expecting such a development until 2017 or 2018.

There are further developments that may result in larger and more profitable surprises down the line; CEO Andrew Littlefair mentioned some of these catalysts in the Q2 conference call:

1) The Volkswagen diesel fuel scandal settlement requires them to pay billions into a fund to help clean the air of diesel exhaust. Some of this money will go to funding low NOx trucks that run on CNG or LNG (CLNE's chief fuel products).

2) NG trucks seem to be increasing in fuel efficiency, making them more attractive.

3) California is considering shifting over 900,000 trucks to natural gas.

To these developments, one might add that China continues its ramp up of natural gas fueling. The nation saw 571 nat gas fueling stations added in January to March of this year, and the ruling party plans to increase the total from under 8000 to 12,500 by the year 2020.

Of course, if Westport Fuel Systems (NASDAQ:WPRT) were to sell 900,000 trucks in California over the next fifteen years or if they were to sell a million trucks to China to help with their smog and pollution catastrophe, that company would be well beyond profitability, which it too reached this quarter. Their sales would multiply by ten or more.

Just to give you the scale of the Chinese ramp-up, the 571 stations added in Q1 is about the same number of stations that Clean Energy runs in North America. Would CLNE expand into a nation like China? Probably not, but they can sell them thousands of their new modular compressors.

Hillary Clinton, of course, is the ultimate catalyst. Look for new pollution regulations with her election, including implementing near smog-free trucks, as built by Westport. Why not cut smog down and save money simultaneously? This is the crux of her save-the-environment-while-improving-the-economy policy.

Catalysts abound, but even without them, both Clean Energy and Westport may be at the cusp of sustained profitability.

Disclosure: I am/we are long CLNE, WPRT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.