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Clean Energy (NASDAQ:CLNE) is busy building out America's Natural Gas Highway probably to the surprise of people not following the industry. The self proclaimed fueling highway is a company initiative to build LNG fueling stations at Flying J and Pilot travel centers around the US in order to provide LNG fuel access along the national highway system.

With several regional highway corridors to be completed by Q3 2012, the company will have huge sections of the natural gas highway constructed. This greatly reduces the hesitancy of fleet operators to move forward with plans to adopt the cheaper fuel for transportation.

Per the company, it is the largest provider of natural gas fuel for transportation in North America and a global leader in the expanding natural gas vehicle fueling market.

Q2 Earnings Highlights

The earnings reports will be bumpy as the company builds out the LNG fueling station network.

The Q2 highlights as announced were as follows:

  • Gallons delivered for the second quarter of 2012 totaled 48.6 million gallons, up 24% from 39.2 million gallons delivered in the same period a year ago.
  • Revenue for the second quarter ended June 30, 2012 was $69.8 million, which is up from $69.1 million in the second quarter of 2011.
  • Adjusted EBITDA for the second quarter of 2012 was $(1.6) million. This compares with adjusted EBITDA of $0.9 million in the second quarter of 2011.
  • Non-GAAP loss per share for the second quarter of 2012 was $0.16, compared with a non-GAAP loss per share for the second quarter of 2011 of $0.10.

The company reported revenue that greatly missed analyst estimates of around $80M. While the analyst estimates are hard to explain considering the lower natural gas prices, the company did power forward with 24% growth in gallons sold. This metric will be more key to tracking the progress being made by the company.

The reported earnings were a loss of $0.16 or a penny better than estimates. While always a key metric, the company will be reporting losses for the foreseeable future due to the aggressive expansion plans.

Stock Performance

After spiking in March to nearly $25, the stock has faded big time to below $14 on Monday. The stock at nearly $13 is now only a dollar above the level from last August.

As the below chart shows, the stock has the potential for huge gains though the bumpy nature of earnings and fluctuation of natural gas prices will cause a wild ride for shareholders.

1 Year Chart - Clean Fuel

(click to enlarge)

America's Natural Gas Highway

The major news this quarter remains the build out of America's Natural Gas Highway. The company plans approximately 150 LNG fueling stations with more than 70 anticipated in 33 states by the end of 2012 and the balance in 2013. The majority will be co-located at Pilot-Flying J Travel Centers already serving goods movement trucking.

The ultimate goal is to provide LNG truck fueling coast-to-coast and border-to-border. While previously just a pipe dream, Clean Energy is in the process of making this plan a reality via a $150M investment from Chesapeake Energy (NYSE:CHK) plus funds from other outside investors.

Below are the planned highway corridors for 2012:

  • Texas Triangle (Houston-San Antonio-Dallas) completed in May
  • Los Angeles-Dallas-Atlanta scheduled for Q3
  • Chicago-Dallas scheduled for Q3
  • Chicago-Atlanta scheduled for Q3
  • Regional corridors in Midwest, Southeast, and Northeast scheduled for Q4.

The below map highlights the highways that will soon be available to LNG users:

(click to enlarge)

Valuation

The stock has a market value of nearly $1.3B. The valuation remains difficult to analyze based on normal metrics as the company is expected to remain unprofitable and revenues are as much based on natural gas prices as volume.

The large 24% increase in gallons sold is clearly an important metric along with the increased gross profit to $0.28 per gallon. A clear sign that volumes are more important than revenue.

Conclusion

The company still remains ahead of the natural gas fuel wave as demand and sales lag while waiting for delivery of LNG powered vehicles. The America's Natural Gas Highway should have a huge impact on demand going forward as potential customers no longer question the availability of fuel along the highway system.

The stock is compelling though the company remains on the bleeding edge of developing a new concept. The question remains whether Clean Energy will be the company to benefit from this plan or whether the early adopter burns out.

Investors should definitely include this company on a watch list, but for now it is only worth watching and not investing.

Source: Clean Energy: The Bumpy Road To Natural Gas Fuel

Additional disclosure: Please consult your financial advisor before making any investment decisions.