On March 6, in an article on Seeking Alpha, I explained that the price of Clean Energy Fuels Corporation (NASDAQ:CLNE) shares had fallen off the side of a cliff and were ripe for a recovery. In that piece, I wrote, "CLNE is a lotto ticket that could pay off, and a 100% move is not out of the question." In a follow up on March 22, I pointed out that insider buying was a positive sign for the stock and put a $3 target on the price of CLNE shares. On March 6, the price was at $1.42 per share, and by March 20, the price had rallied to $1.71, a gain of over 20 percent.
In my initial piece, I observed that the company had a "consistent stream of announcements above partnerships, technological victories, and positive news from the company over past years, but the stock's price continues to head south."
Two months later, at the beginning of May, the prospects for CLNE are looking a lot brighter, and the shares have moved to the upside.
CLNE has been moving higher
As the chart shows, not only has CLNE moved above the $2 level, but it broke above a critical level of technical resistance at the November 30, 2017 peak at $2.28 per share. The move to the upside on May 10 occurred on an extremely high-volume day in the shares, which tends to be a positive technical sign for the stock.
A deal with Total takes the price above $2 per share
The move to a new short-term high in the stock came on news that the French global oil and gas giant Total S.A. (NYSE:TOT) agreed to rake a 25% stake in Clean Energy in a deal to buy 50.8 million shares for $83.4 million. The deal would make Total the largest shareholder of the company, and it is also partnering with CLNE in an agreement that will create a leasing program for heavy-duty natural gas vehicles. In addition to the equity purchase, Total could provide $100 million in lines of credit to fund leases.
The deal will increase CLNE's cash position which could result in more cash than debt on its balance sheet. Additionally, with the price of crude oil rallying to over $70 per barrel, and natural gas below the $3 per MMBtu level, the demand for the gas-powered vehicles could be on the verge of exploding to the upside. If the price of crude oil continues its ascent, CLNE is well-positioned to take advantage of the widening spread between the two energy commodities.
The NYMEX heating oil crack spread represents the economics of processing a barrel of crude oil into distillate products. The heating oil crack is a proxy for diesel fuel. As the chart illustrates, the distillate prices have been outperforming the crude oil at a time when oil prices have risen to their highest level since 2014. The Total deal together with improving fundamentals for CLNE's products because of the rise in diesel prices could create an earnings bonanza for the company in the months ahead.
Q1 snapshot looks good
On May 10, CLNE reported first-quarter net income of $12.2 million. The company said it had a profit of 8 cents per share. Adjusted for stock option expense and nonrecurring costs, the earnings came to 10 cents per share. On a year-on-year basis, revenues increased by 14.4%. However, the increase was primarily because of $25.5 million in revenue from the U.S. federal excise tax credits for alternative fuels (OTCPK:AFTC). While the earnings were solid, the deal with Total and cash injection could provide the company with both the staying power and capital to capture more market share given the changes in the energy markets as consumers seek cheaper alternatives than traditional diesel fuel.
A technical break to the upside; levels to watch
As the chart over the past year shows, the next level of technical resistance now stands at $2.60 per share, the September 14, 2017 high, and then at $3.05 the July 25, 2017 peak and my initial target level for the shares of CLNE. However, given the investment by Total, the credit lines, and the rise in the price of diesel fuel, the upside target should be higher for the company, and it still represents a buying opportunity at its current level at just below the $2 per share level.
How high can this stock go?
As the chart shows, we could see plenty of action in this company's stock if the price were to move above the September 2016 peak at $4.80 per share. I believe that the Total investment and partnership means we could see CLNE shares move above that level and head back towards the $10 level over coming months and years.
My initial target of $3 will look like a golden buying opportunity for the company if the market begins to adopt their products and the overall environment in energy markets are making that a serious possibility.
The stars are lining up for CLNE these days on all fronts. I will not be selling my shares at $3 as I believe the upside got a lot more interesting at the beginning of May for the company. Stay tuned…
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.
Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.