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Clean Energy Fuels Continues To Disappoint

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About: Clean Energy Fuels Corp. (CLNE), Includes: BGR, BOIL, CRAK, DBE, DDG, DGAZ, DIG, DUG, ERX, ERY, FCG, FENY, FIF, FTXN, FXN, GASL, GASX, GAZ, GAZB, IYE, JHME, JJE, KOLD, MLPG, NANR, OIH, PXJ, RJN, RYE, UBN, UGA, UGAZ, UNG, UNL, VDE, XLE
by: Andrew Hecht
Andrew Hecht
Commodities, long/short equity, medium-term horizon, long-term horizon
Summary

CLNE shares remain depressed.

The company continues to show losses.

T. Boone Pickens' legacy.

Insider ownership and debt has improved.

Problems with the business model.

Clean Energy Fuels Corp. (CLNE) will report its third-quarter earnings on November 12. The market's consensus is expecting a two cents per share loss for the quarter.

The company provides natural gas as an alternative fuel for vehicle fleets in the US and Canada. CLNE supplies renewable, compressed, and liquefied natural gas for medium and heavy-duty vehicles. At the same time, they offer operation and maintenance services for public and private vehicle fleet customer stations.

When it comes to alternative fuels, battery-powered electric vehicles compete with natural gas. However, the US has become the Saudi Arabia of natural gas in addition to being the Saudi Arabia of oil these days as the nation is the world's leading producer of both energy commodities.

After peaking at $24.75 per share in 2012, the company's stock has declined steadily. As of Tuesday, November 5, CLNE shares were trading at $2.37 per share, which was below the midpoint of the 2019 trading range.

CLNE shares remain depressed

At the price on November 5, CLNE shares were over ten times lower than at the peak in 2012.

Source: Barchart

The chart highlights that Clean Energy Fuels shares rose to a high of $24.75 in March 2012. Since then, CLNE has done nothing but made lower highs and lower lows. The stock fell to a low at $1.31 in March 2018. After recovering to a high at $4.05 in June 2018, the shares have traded between $1.68 and $3.47 in 2019. The current price is below the midpoint of the year, while the stock market was making new all-time highs.

The company continues to show losses

Alternative energy is a growing business. However, CLNE has failed when it comes to finding a way to profit. Over the past four quarters, CLNE has lost between two and six cents per share. While the company beat consensus estimates in Q3 and Q4 2018, they came up short in Q1 and Q2 2019. The market will hear from them once again on November 12, and analysts expect another loss. A profit would come as a shock to the market and would likely send CLNE to a new high for the year. With market consensus expecting a loss, the downside for the shares could be small, but the upside potential much greater. Therefore, I favor going into the quarterly earnings report with a long position. However, I view CLNE as little more than a highly liquid trading sardine.

The company has a market cap of $476.688 million at $2.37 per share. On an average day, over 700,000 shares change changes.

T. Boone Pickens' legacy

T. Boone Pickens passed away on September 11, 2019. The energy investor and corporate raider once said, "Chief executives, who themselves own few shares of their companies, have no more feeling for the average stockholder than they do for baboons in Africa." The plain-speaking Texan put his money where his mouth was.

CLNE was initially the brainchild of Pickens and the current President and CEO Andrew Littlefair. The two visionaries believed that a greener planet and energy independence could operate together. Today, Clean Energy operates over 530 natural gas fueling stations in 43 states in the US and Canada.

Insider ownership and debt has improved

As of March 1, 2018, T. Boone Pickens owned 13.061 million shares of CLNE stock, and Andrew Littlefair held 1,574,050 shares. Given their respective long positions, the two cared more about the company than about "baboons in Africa."

Insiders hold 32.99% of the company, with 165 institutions holding 28.48% of the shares and 42.5% of the float. Meanwhile, the company's debt to equity ratio has been steadily improving since 2015. According to Zacks, the total amount of long-term debt divided by total shareholder equity has dropped significantly over the past four years.

Source: Zacks

The chart shows that the metric declined from almost 142% in mid-2015 to under 10% in mid-2019. Zacks currently rates CLNE shares a strong buy.

Problems with the business model

While the potential for a move to the upside in CLNE shares seems to be growing, another two cents per share loss on November 12 for Q3 would likely delay any price appreciation. The problem I see with the natural gas-powered vehicle business in competition from EVs.

Mr. Pickens and Littlefair saw an opportunity in the trend towards greener energy sources, and natural gas is cleaner than crude oil and oil products. However, the world of alternative energy is looking past hydrocarbons, and fracking has become a no-no for those supporting the "Green New Deal" in the US.

The progressive wing of Democrats would like to ban fracking. Senator Elizabeth Warren, one of the leading candidates for her party's nomination for President, pledged to outlaw fracking on day-one of her administration. Wind, solar, and other alternative and renewable energy sources are gaining support at the expense of both oil and gas. CLNE's business and value depend on the adoption of gas-powered vehicles. If battery power prevails over the coming years, CLNE will wind up in the dust bin of history.

The 2020 election in the US will be a referendum on energy policy, among many other issues, if the Democrats nominate a progressive candidate. The incumbent President will continue to advocate for energy independence now that the US is the world's leading producer of both petroleum and natural gas. Therefore, CLNE could rally in the short-term based on a positive earnings report, but the next year will likely determine the future for the company. A victory by the Republicans or a moderate Democrat in the 2020 election will keep hopes alive for CLNE, but a progressive win could seal the company's fate.

T. Boone Pickens was an oilman. He was also a visionary who saw that alternative fuels would address environmental concerns. However, fracking is likely to become a highly contentious issue that could spell disaster for CLNE and other natural gas producers and related businesses in the US.

I am bullish on CLNE shares for the short term, but would take a profit quickly on a rally that takes the stock to a new high for this year. CLNE is a trading sardine rather than a candidate for a long-term investment.

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.