Clean Energy Fuels Should Be More Than Double Its Price, But It’s a Risky Bet

When the clean energy bubble popped back in February Clean Energy Fuels (NASDAQ:CLNE) stock traded steadily at lower highs.

CLNE stock: Image of a Metro Local public transportation bus on Hollywood Blvd.
Source: ZikG / Shutterstock.com

Short sellers will profit if CLNE stock keeps falling.

At a short float of around 8%, the oil and gas refining and marketing firm has plenty of technical headwinds.

Clean Energy posted weak second-quarter results. Before markets digest the company’s quarterly loss, it needs to overcome the negative momentum around alternative energy stocks.

On Aug. 5, Clean Energy reported the delivery of 101.4 million gallons of compressed natural gas (CNG) and liquefied natural gas (LNG) to its network fueling stations.

It posted revenue of only $0.48 million. This included a non-cash stock-based sales incentive with Amazon.com (NASDAQ:AMZN). With the warrant charges excluded, revenue for Q2 rose by 28.9% year-on-year to $79 million.

The firm benefited from a favorable fuel price mix and higher natural gas prices.

When Clean Energy stock peaked at nearly $20, bulls thought the association with Amazon.com would lead to strong results.

Instead, the write-down is a stark reminder of how tough it is for alternative energy firms to operate profitably.

Despite the big write-down, Clean Energy benefited from the market euphoria. It raised $200 million in cash through an at-the-market equity offering.

It ended the quarter with $254 million in cash and investments. This allowed it to contribute $50 million to its negative carbon intensity RNG development. CLNE has more than enough cash to pay off its $42 million debt.

Amazon and CLNE Stock

CLNE is building stations for Amazon that will be open to the public. That is, other truck companies may use those stations.

Because Amazon looks at the emissions of the trucks, the e-commerce company will invite cleaner vehicles to the fleet. This would support Clean Energy’s business model.

In the near term, Clean Energy needs to evaluate where to build stations for Amazon. It spends most of its time selecting locations. Building the station does not require much effort. It is currently fueling Amazon trucks at 37 of its stations.

At a macro level, the U.S. government will invest in projects that supply low to negative carbon renewable fuel solutions. Clean Energy’s primary vehicle fuel sales are renewable natural gas. It achieves this through a zero-carbon feedstock, as shown in slide 7.

Compared to an electric truck and diesel truck, CLNE’s near-zero natural gas truck is certified to produce only 0.02 g/bhp/hr of NOx.

Now that fuel volume demands are increasing, the company may achieve a 12% to 15% volume growth this year.

CEO on Earnings

Chief Executive Officer Robert Vreeland said is targeting at least a double-digit volume growth.

“We still want to see how all that various deals shake out before we give too much guidance towards the 2022 volume,” he said on the conference call. “But it should be north of 10% as we go into that grade.”

Amazon trucks will account for much of the fuel shipments. The fleet needs anywhere between 12,500 gallons and 20,000 gallons.

Amazon’s commitment to clean energy fuels should lead to a steady climb for Clean Energy’s revenue. As it proves that it can keep up with building more stations and supplying more fuels, Amazon’s fuel orders will increase.

Based on its future cash flow discounted to present value, CLNE stock is worth almost $20 (it trades today at around $8). To get there, Clean Energy must post break-even earnings by next year and profits by 2023.

References to clean energy initiatives in the U.S. infrastructure bill are encouraging, but Clean Energy needs to sign more contracts with customers other than Amazon.

Its reliance on one customer is risky for investors. For example, Amazon could change suppliers or invest less in zero-emission projects. That would severely hurt Clean Energy’s prospects.

Your Takeaway

Wall Street’s mixed opinion on Clean Energy is not encouraging for investors. Two of the three analysts rate the stock as a “sell,” according to Tipranks. Despite the ranking, two analysts issued an $11 price target in the last month.

Sentiment may reverse suddenly and without notice. That would send Clean Energy shares higher, rewarding speculators who bet on a bounce.

Investors who do not have the nerves to bet on momentum should avoid this stock.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns. 


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