David Allen

Long/short equity, deep value, value, growth
David Allen
Long/short equity, deep value, value, growth
Contributor since: 2012
Ron, no I have not been following Arcam since the 3D bubble and selling my position. I am watching, but I still do not regard Arcam as an attractive investment at its current price level.
Informative article; thank you!
I guess the strategy of this article is to throw anything and everything at the wall to see if anything sticks. I wouldn't say this article is completely wrong, but it's wrong about a whole lot of things. Just to name a few:
* The tax credits and gain on the sale of assets were clearly disclosed in the last quarterly report. Any investor could plainly see this information and take it into account in analyzing CLNE's performance.
* CLNE's gallons delivered have been increasing at about a 20% rate. While it's true that LNG adoption for long haul trucking has not occurred as fast as originally expected, it is continuing to occur. Meanwhile, other aspects of CLNE's business, most notably CNG, RNG and LNG to fixed locations are continuing to grow at strong rates.
* Stating that CLNE won't be able to pay off their convertible debt next year is the equivalent of saying I'm not going to be able to pay off my mortgage next year: yeah, so what? CLNE is on track to be adjusted EBITDA positive this year, which means that one of two things will happen next year: either the convertible debt will be converted to shares -- resulting in all shareholders owning somewhat diluted shares in a suddenly profitable company -- or the convertible debt will be refinanced -- resulting in lower interest rates and being that much closer to positive cash flow.
* Senior employees are well compensated, but contrary to the hyperbolic rhetoric of this article, they were compensated at far lower rates in 2014 than they had been at 2012 -- just look at the charts in the article!
I could go on, but hopefully the readers will get the point. As the author's disclosure states, they're short CLNE, so my sympathies are certainly with them. Unfortunately for them, but fortunately for me, I expect CLNE will be approaching $15 per share by year end.
Excellent summary. CNG is, as you point out, growing nicely. CLNE has a dominant position in the fleet CNG market and delivery to fixed sites has huge upside potential. RNG is flat in part because they've sold RNG assets to reduce debt. LNG is a wild card. In a Mötley Fool interview a couple of weeks ago, Andrew Lillefair was positive about CLNE's ANGH, stating that long haul trucking companies are moving forward with LNG trucks and predicting most ANGH stations would be open by the end of 2015. CLNE needs to deliver about 30M more gallons per quarter to reach cash flow breakeven; your article is cautious about this, but I don't think there's any serious question about their doing this with current cash on hand. They probably need to double their current deliveries to legitimately be a $20 stock; I think they will get there, but I don't think it will be this year. Next year? I wouldn't at all be surprised.
Yes, still a strong buy.
Thank you for a thorough and thoughtful article. Good luck to HTCH investors!
In his last comment on the subject (when the stock was trading near $30), the author said his cost basis was $22 and that he intended to buy more if the price fell below $30. I think it fair to assume he's well under water now.
Nobody mentioned T. Boone Pickens sell off because there has been no sell off -- by Pickens or any other insider: http://bit.ly/1eFtBVl.
The VETC that has passed the house and pundits say is a shoe-in for Senate approval and a presidential signature, will probably add $30 million or so to CLNE's bottom line next year. Depending on how fast NG deliveries grow, CLNE could reach profitability in 2015.
One of the key questions about CLNE is how many trucks are converting to natural gas as a fuel. Unfortunately, the Navigant Research report that you cite as evidence that there will 35 million of these trucks on the road by 2020 is from the first half of 2013. The growth rate since this report was published has been significantly slower than this report had projected. How does that impact the opportunity for CLNE?
Your comment is right on target. With daily volume in CLNE now averaging about 1.6 million shares, and a float that's a tad higher than 70 million, the average share is now changing hands every 43 trading days. If you assume that the 34% held by institutions and the 24% held by insiders aren't a significant part of this volume, this means the average retail investor is owning CLNE for about 4 weeks. From my perspective, this is gambling not investing; as for me, I'm thinking in terms of years not weeks.
Thank you very much -- I will look into it!
It was a good tip, but I'm afraid I failed to follow through. Thanks anyway!
Using reasonable assumptions based on Google's current businesses, I am not persuaded that the stock is much of a bargain. But, to be able to buy this stock at a reasonable price while also ensuring that I will be on board if one of their skunk work projects hits a home run (e.g., astroid mining, self-driving cars, worldwide internet, extending human longevity) -- this is a no-brainer: of course I need to own this stock.
Nice article. Could you explain why you assumed margins of 39.5% - 43% in years 2014 through 2018, when the 2013 margin was only 30.5%? Did you do a sensitivity analysis to determine what the projected fair value would be if margins were not as high as you assumed?
Your article mentions the uncertainty created by the regulatory environment, but skips the opportunities. It is true that uncertainty in the regulatory environment has slowed the transfer of debt to companies like PRAA. However, this same uncertainty is shrinking the number of competitors that PRAA has -- and new regulations will make it harder for new competitors to enter the market. The net result is that resolution of the regulatory issues, which will happen, will leave PRAA in a distinctly advantageous position with increasing amounts of debt available for purchase and fewer options for those selling this debt.
It is also important to note that this third quarter was the first to partially incorporate the benefits of the European acquisition. The fourth quarter will be the first full quarter which includes Europe.
I would agree with your analysis that the past quarter was a "meh" -- not bad, but not great either. I think you have missed, however, the "wow" opportunity that PRAA has going forward.
Thank you for a great look at a promising new REIT.
Great article. I am long IPGP and very bullish.
I don't think it will happen. Their marketshare for suspension assemblies seems to be improving, but they need to sell about 130 thousand a quarter to reach breakeven and, even during the peak season of this past quarter, they fell short. I think the optical image stabilizer is probably too little too late, but it's possible they could pull a rabbit out of their hat and reach profitability. However, even if they do, I'm not sure there's a lot of upside for investors. I have closed my position in this stock.
Well, you're half right, which is much better than your average. Wheeler was fired, but he wasn't paid hush money. Rather, he was paid in accordance with his employment agreement which has long been on file with the SEC: http://bit.ly/1pcHmFc.
In CLNE's most recent quarter, they delivered 68.6 gge which was up 22% from deliveries one year ago. Annualized, 68.6 gge is 274.4 (68.6 x 4 = 274.4). At a 22% growth rate, it will take less than two years to exceed 400 gge (274.4 x 1.22 x 1.22 = 408.4). At September 30, 2014, CLNE had cash on hand and short-term investments of $265.1 million. Through the first nine months of 2014, CLNE operations consumed $56.4 million. Thus, at their current burn rate, CLNE has sufficient cash to last 3.5 years (265.1/[56.4/.75]) -- but, of course, as they deliver more gallons, their burn rate will fall... so actually they have five or more years of cash available.
You are absolutely positively wrong, paterno. 400 million gge is not "a very long way off"; it is probably about two years off. And it is not "much longer than their cash burn permits" -- they have plenty of cash.
I find it ironic that you began your criticism of CLNE some time ago by questioning the ethics and honesty of T Boone Pickens, but now you've fallen into the same type of behavior you used to accuse him of. If you dispute facts, dispute them -- but simple name-calling with no evidence or facts to support your arguments makes you look uninformed.
Good article. The key to valuation is future earnings growth. Using the Graham method, if you accept analyst consensus that earnings growth over the next 5 years will be 16.3%, you would conclude (as you did) that Disney's value is a little more than twice its current price. However, if the growth rate is only 8% over the next 5 years, then Disney has already reached its fair value.
To really ascertain whether Disney is a good buy, I think you therefore need to really look deeply at sources of revenues and earnings to examine risks associated with sustaining this growth rate.
CLNE reported a fantastic quarter. Growth continues at a substantial rate and management reports they have adequate cash on hand with little worry about debt -- I am very bullish on CLNE going forward.
I think we're two years from profitability; would be very surprised if this word comes up in the conference call. OTOH, positive EBITDA might come up.
The brief answer is "yes". The longer answer is:
* I think natural gas will become more widely used as a fuel for transportation and industry,
* CLNE is positioned as the leading retailer of natural gas fuel,
* CLNE is likely to continue growing at 20%+ annually,
* Once CLNE becomes cash flow positive in approximately two years, there will be virtually no short sellers and its market capitalization will enjoy high multiples,
* The adoption of LNG by Class 8 trucks is still a wild card, but Class 8 trucks buy about $30 billion of diesel annually in the U.S. and if LNG gets any significant traction, CLNE stock could be worth hundreds of dollars in a few years,
* Judging by the accelerated earnings announcement date, and today's press release reporting 43 new fleet customers in the third quarter alone, we are going to be pleasantly surprised by the third quarter growth rate, and
* Based on all of the above, the chances of a short squeeze in the next few weeks are pretty darn good -- which should lead to a very nice bounce in the stock price.
CLNE announces 43 new fleet customers were added in the 3rd quarter: http://bit.ly/1tcoRBw
Correct me if I'm wrong, but if you assume each OTR truck consumes 20,000 gallons per year, 1,000 trucks will add only 5 million per quarter or 20 million per year.
I expect CLNE to report deliveries of about 70 million gallons in the third quarter. This is an annualized rate of 280 million. With deliveries growing by ~20% annually (~+60 million/annually), 400 million is not very far in the future -- in fact, about 2 years in the future.
NEWPORT BEACH, Calif. — October 15, 2014 — Clean Energy Fuels Corp. (NASDAQ: CLNE) today reported it delivered for the first time over 50 million compressed natural gas (CNG) gallons in one quarter. The company plans to grow its CNG sales further with a strategic move to expand its CNG market to large industrial and institutional energy users beyond the nation’s natural gas pipeline by acquiring a controlling interest in NG Advantage LLC, a pioneer in the natural gas “virtual pipeline” delivery system. The NG Advantage investment will primarily be used to fund capital expenditures for expansion and growth in the business. Clean Energy will also purchase NG Advantage’s Milton, Vt., compression station which is on track to supply nearly 16 million gasoline-gallon-equiva... (GGEs) of CNG annually. This station will immediately become Clean Energy’s highest-volume station in its nationwide network of almost 500 stations.

“The NG Advantage purchase is a perfect example of Clean Energy’s focus on aggressively pursuing new market opportunities to help rapidly grow our CNG gas sales,” said Andrew J. Littlefair, President and CEO of Clean Energy. “Our record growth in overall delivered gallons combined with the new market reach of NG Advantage positions Clean Energy to keep growing as our trucking business develops.”

Littlefair added, “We immediately recognized the potential in NG Advantage as a powerful partnership combining Clean Energy’s leadership in natural gas fueling and compressor technology with NG Advantage’s market presence and pioneering delivery system. NG Advantage’s groundbreaking ‘virtual pipeline’ currently brings natural gas to new markets in the Northeast with the potential of expanding to other areas in North America that do not have direct access to natural gas pipelines.”

NG Advantage’s founder and president, Tom Evslin, will remain with the company as CEO and its second largest investor, and will continue to oversee operations from its Milton offices. Founded less than four years ago, the company and the acceptance of the “virtual pipeline” have grown rapidly. As a result of this partnership, Clean Energy expects a significant increase in delivered CNG volume day one and forecasts rapid growth as NG Advantage expands with Clean Energy’s existing station network and new stations built with compressors from its IMW subsidiary.

“Rising and unpredictable fuel costs have made it exceptionally difficult for manufacturers and facilities without access to the nation’s natural gas pipeline network to compete in an increasingly competitive marketplace,” said Evslin. “NG Advantage is forging a new industry which meets this need, and the partnership with Clean Energy ensures our customers will be working with the most experienced natural gas fuel provider at every step in the process. Clean Energy had the foresight to establish the country’s largest network of compression stations. Although they were originally built for vehicle fueling, they compress gas to exactly the pressure we need to fill our trailers and we expect many will be suitable for co-location. We look forward to using this network to rapidly bring the benefits of natural gas to enterprises beyond the pipeline nationwide.”

Founded in 2011, NG Advantage has created a new industry transporting CNG in high-capacity trailers to large industrial and institutional energy users such as hospitals, food processors, manufacturers and paper mills. The CNG is transported in its fleet of tanker trucks, offloaded and used to replace fuel-oil and propane which can save customers up to 40 percent on fuel costs while reducing greenhouse gas emissions by up to 26 percent. Companies burning coal can reduce their CO2 emissions by 50% when converting to natural gas.

NG Advantage has exclusive long-term contracts with more than 20 energy-intensive organizations served by its Milton, Vt., compression facility and the newly-opened Pembroke, N.H., facility. The Pembroke facility utilizes six IMW compressors which can fill approximately 3,500 CNG gallons per hour. The facility is owned and operated by Clean Energy.
Good points, whassup. I should have noted in the article that 2013 revenues included some substantial revenue sources that no longer exist. There are also a couple of other things that are in CLNE's favor which I didn't address in the article.
First, it is worth noting that, as a retailer, CLNE's gallon equivalents delivered is perhaps more important than total revenues. CLNE may earn a margin of $0.28 to $0.30 per gallon delivered even if the value of the gallon decreases from, say, $3.00 to $2.50; thus, revenues could decline while margins improve (because volume increases more than price per unit falls).
Second, it is also noteworthy that CLNE's stock price has been punished as though they are a producer of natural gas when actually they are a retailer. A producer of natural gas is going to be impacted more by falling natural gas prices than a retailer of natural gas.
Finally, falling diesel and natural gas prices are not necessarily bad for CLNE so long as the spread remains the same. Freightliner has a cool website for calculating how much money truckers can save by switching to CNG or LNG: http://bit.ly/1gpWozu.