Betting on Alternative Fueling at Clean Energy Fuels

by Debra Fiakas CFA

Clean Energy Fuels (CLNE:  Nasdaq) is building a nationwide network of natural gas stations for fleet vehicles.  The company supplies compressed natural gas (CNG) fuel for light, medium, and heavy-duty vehicles; and liquefied natural gas (LNG) fuel for medium and heavy-duty vehicles.  While there is a growing number of fleet owners that have invested in natural gas vehicles, Clean Energy has yet to reach the critical mass needed to reach profitability.  The company claimed 650 fleet owners as customers with over 30,000 vehicles in operation.

Clean Energy reported $334 million in total sales in the year 2012, compared to $292.7 million the prior year.  The represents 14.1% year-over-year growth, which is not a bad showing given the state of the U.S. economy.  Unfortunately, the net loss widened in 2012.   First of all, the profit margin slipped to 24% and higher general and administrative expenses served as an additional drag.

What has really been a problem for Clean Energy Fuels is the slow pace of natural gas vehicles by fleet owners.  Engines burning natural gas cost substantially more than gas or diesel engines.  Even with the lower cost of natural gas, truck owners claim the return on investment is too long.

Earlier this week Clean Energy and its partner Westport Innovations (WPRT:  Nasdaq) announced a new program to encourage natural gas vehicle purchases.  The two companies have agreed to bundle the Westport Liquified Natural Gas System and a Clean Energy long-term fuel contract.  The package of rebates and discounts should deliver the kind of savings that will accelerate return on investment for truck owners.

If the program is successful in winning converts to natural gas, Clean Energy will open additional natural gas distribution points.  Indicated demand of 30,000 gallons or more is necessary to support regional fueling stations.  Clean Energy has 60 new stations planned for the expansion that will be added to the 348 natural gas fueling stations it had in operation at the end of 2012.

CLNE has been trading in a range the last few months, held back by a solid line of resistance at the $14.50 price level.  Fortunately, there appears to be a strong level of support near $12.00 per share.  If the sales and marketing program with Westport draws new customers at a faster pace, CLNE will certainly look more attractive despite the recent losses.  Recent trading sessions suggest that is an element of upward momentum in the stock that could propel the price to the $18.50 level.  Management’s report on the first quarter 2013 will certainly included at some news on special offer and that could be enough to pierce the price ceiling near $14.50.

Photo: Clean Energy Fuels CNG Fueling Station with CNG buses via Wikimedia Commons by Jennagraber.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.