By Robert Gordon
Many companies engage in the development, extraction, refinement and selling of fossil fuels. Yet, there are several companies within this sector that specialize in just one level of the process. Today, I am going to focus on the middlemen, those who make their money by having fuels pass through their pipelines. There has been consolidation in this era of low natural gas prices, but there are still plenty of interesting opportunities out there. Here are four solid companies I came across:
Clean Energy Fuels Corp. (CLNE)
Clean Energy has a vision: To have the United States and Canadian truck fleets run on relatively clean, local and inexpensive natural gas. To accomplish this goal, refueling stations must be built along all major truck routes. Clean Energy Fuels is trying to make that happen.
The company is already a fraction of the way there with about 240 service stations built. The company also has contracts with various municipalities and fleet operations. Clean Energy's guardian angel is T Boone Pickens, who has long advocated using natural gas as the primary fleet transportation fuel in this country. And with the historic collapse of natural gas prices, leading to BTU equivalent gas now 20% of the cost of oil, now is the time to ensure this infrastructure for truck fleets. The grander plan is for increased natural gas demand to drive up natural gas prices, therefore making wind energy a more attractive proposition as an electricity source.
Despite the best of intentions since going public in 2007, Clean Energy has not yet posted a profit, and one is not expected in the near future. Its revenues are improving as it has secured commitments from various municipal and private fleets, and earlier in 2012, it inked a joint operating deal with truck maker Navistar International (NAV).
I like Clean Energy, but not enough to invest in it. I need to see a commitment to profitability, rather than just to growth. A quarter or two of profits, and I will be a shareholder.
Enbridge Inc. (ENB)
Enbridge had a solid 2011, and took concrete steps to ensure its profitability in the future as well. In the fourth quarter of 2011, Enbridge posted adjusted earnings, excluding a $60 million, one time gain, of $275 million, or $0.37 per share, a 16% leap from the $0.32 posted in the same quarter of 2010. For all of 2011, Enbridge adjusted earnings were $1.48 per share, an 11% advance from the 2010 per share earnings of $1.33.
Looking ahead, I believe that Enbridge's most beneficial move was to agree to reverse the flow of the 30 inch Seaway Pipeline, helping to shift crude from the recent bottleneck in Cushing, Oklahoma, to Gulf Coast refiners. Enbridge is also a substantial investment in clean energy, with over 1,000 megawatts in wind power alone. Analysts see 2012 earnings at $1.65. Helping to balance out Enbridge's sky high price to earnings ratio is its 5 year estimated PEG of 2.4, which is low for this sector. Enbridge is my choice in the pipeline sector, and I urge you to consider it also.
Spectra Energy Corp. (SE)
Spectra had a great 2011. Earnings for the year ended up at $1.16 billion, or $1.77 per share, up 14% from $1.02 billion, or $1.57 per share in 2010. The most impressive part about this company's 2011 performance was that earnings exceeded the company's own guidance of $1.65 per share by 7%. Spectra has also invested wisely in its future. A large pipeline expansion and modernization project is planned for the New York City metropolitan area, along with a western Canada pipeline to transport tar sands oil and liquified natural gas to British Columbia for shipment to Asian buyers. I foresee Spectra's earnings rising in the high single digits through the next two years, and Spectra has a five year PEG of 2.3. I see Spectra as a good choice in this sector, but without the growth potential of Enbridge.
TransCanada Corp. (TRP)
TransCanada performed well in 2011. Earnings came to $1.5 billion, or $2.18 per share, a 13 % increase from $1.77 per share reported in 2010. The momentum may continue, but likely at a lower pace, as TransCanada has made substantial investments in growth. One of its major projects is the Keystone XL Pipeline, which, at the time of writing, sits in limbo. This project, if completed, will cost about $7.5 billion, and would be completed by 2015. The company has other projects on its agenda as well. The company recently raised its quarterly dividend to $0.44 per share, for a yield of 4.2%. I have pegged TransCanada earnings at $2.41 and $2.52 per share in 2012 and 2013. Despite the slow rate of growth and the uncertainty surrounding the Keystone XL project, I still firmly believe that TransCanada is a great investment right now.