Update On CLNE

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Includes: CLNE
by: Andrew Hecht
Summary

Selling on earnings.

Expectations were too high.

Total did not bring immediate gratification.

The earnings report is a reason to be bullish on this stock.

Another opportunity to buy.

In my last piece on Clean Energy Fuels Corporation published on Seeking Alpha on June 26, I had become a bit too overenthusiastic with the price action in the stock of CLNE. On that date, the shares had just eclipsed the $3 level and were on their way to highs of $4.05 on June 27.

CLNE shares had been on fire after reaching a low of $1.31 in early March of this year. At the highs, the stock more than tripled in value, and it looked like it was on its way to a test of the August 2016 peak at $4.80. Above that technical resistance level, the May 2015 high was at $6.44 per share, and the May 2015 high was up at $10.48. The all-time high came in 2012 when CLNE reached $24.75. However, the price of the shares dropped and traded between the $2.54 and $2.88 level from July 10 through August 7.

Last week, on August 7, the company released earnings markets initial reaction was negative which sent the price of its shares to the lowest level since mid-May.

Selling on earnings

On August 7, CLNE reported a non-GAAP second-quarter loss of $0.07 per share and the kneejerk reaction to the earnings report was selling in the stock.

Source: Barchart

As the chart highlights, after trading in a range from just over $2.50 to just under $2.90 since July 10, the price of the stock spiked lower to $2.15 on August 8 on heavy volume of over four million shares. The price bounced on the same day and closed the session at $2.46.

After trading at $4.05 per share in late June, many latecomers bailed out of long positions as the company posted a second-quarter loss.

Expectations were too high

The triple in value in the stock from early March to late June created a frenzy of buying in CLNE shares.

Source: CQG

As the daily chart illustrates, the move from $1.31 in March started as a crawl that took CLNE to around the $1.50 level at the end of April. On May 2, the stock broke out to the upside, and in under two months, it hit its high at just over the $4 per share level. The stock took off to the upside in early May when Total, the French energy giant, bought 25% of the company and provided CLNE with a $100 million line of credit. Buyers came flooding into the stock taking it way into overbought territory at the highs.

Total did not bring immediate gratification

Those who came late to the party and bought CLNE at prices over $3 per share believed the Total purchase would continue to lift the price of the shares into the stratosphere. A loss of 7 cents in the second quarter was sobering and caused many to bail out of their long positions sending the price of the stock plunging to a level below where it was before the Total news. Fear of the stock returning to the early March low was too much to bear for the weak longs which could be good news for those who got in at lower levels. CLNE rebounded and closed at the $2.70 per share level last Friday. Moreover, the move cleaned some of the speculative froth from the market, and now the stock can move higher because the earnings report was not all that bearish.

The earnings report is a reason to be bullish on this stock

Chief Executive Officers typically put the most positive spin on earnings reports, but the comments of CLNE’s chief Andrew Littlefair summed up that there is a lot to like about the progress of the company over recent months. He told shareholders:

In the second quarter, we completed a transaction we believe could be pivotal and transformative for our Company, and we also achieved continued operating improvement. First and foremost, our shareholders overwhelmingly approved the investment by an affiliate of Total S.A., the French energy giant, to acquire 25% of Clean Energy. Total is already proving to be a tremendous strategic partner for us, and we are looking forward to working with Total to accelerate the use of natural gas by heavy-duty trucks in the United States. Additionally, we saw a 40% improvement in operating results, improved cash flows and cash and investment levels that exceed our debt balances. We believe we are at an optimal time for the Company and the natural gas vehicle fuel industry, particularly with the increasing focus on the environmental and economic benefits of renewable natural gas and conventional natural gas, with the force of one of the world’s largest energy companies.

Aside from some adjustments to the second quarter numbers, volumes and sales trended higher during the three month period that ended on June 30. While cash flow improved, operating costs moved lower. Sales, general, and administrative expenses were down 15% compared to Q2 2017 and should fall even more during the coming six month period. The company had $42 million more in cash and investments than debt as of the end of June as the balance sheet has strengthened dramatically. There are events on the horizon that should drive earnings for the company. The ports of Long Beach and Los Angeles, the two most heavily trafficked in the United States, are in the process of implementing new requirements on emissions which include natural gas-powered trucks. The CLNE lease program with Total behind it makes natural gas trucks the price equivalent to diesel-powered trucks with the benefit of lower fuel prices is now available to customers in the area. The adoption of new rules and a shift in the trucking market is a process that does not occur immediately, but the trend is clear, and it will support increasing earnings for CLNE.

Finally, Total would not have wasted its time and capital on this company if it did not see the potential for significant rewards.

Another opportunity to buy

I began writing about CLNE in early March when the shares were near the lows at $1.31. I bought, and still hold the stock at around the $1.40 level and rode it up to over $4 and back down to $2.15, last week. While I took some profits above the $3 level, I will likely be repurchasing all of those shares as the company’s future bright these days with a cleaner balance sheet, trimmed expenses and a growing market for their product. Total is likely looking at CLNE as a potential foot in the door when it comes to the U.S. market for supplying RNG, CNG, and LNG products for light, medium, and heavy-duty trucks. CLNE headquarters are in what is ground zero for the clean energy industry in Newport Beach, California. At the end of 2017, the company served around 1,000 fleet customers with approximately 46,000 natural gas vehicles. The also owned, operated, or supplied 530 natural gas fueling stations in 42 states in the U.S. and four provinces in Canada.

CLNE’s business is growing, and while Total holds a 25% stake, that could increase at higher prices for the shares if the market continues to grow. I continue to be bullish on the prospects for CLNE and view a price below the $3 per share level as a bargain.

Disclosure: I am/we are long CLNE. 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.