This Just In: CLNE

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

And speaking of the best ...
Last week, one of my favorite Fool writers, Travis Hoium, made the bold prediction that Clean Energy Fuels (Nasdaq: CLNE  ) was "ready to pop in 2012." Citing a whole host of tailwinds giving this stock a lift -- from the company's partnerships with Flying J to its $150 million capital infusion from Chesapeake Energy (NYSE: CHK  ) to the plummeting cost of natural gas that's made the fuel much more affordable for use in transportation -- Travis argued that while "the transition to natural gas will be slow ... Clean Energy Fuels looks to be one of the companies leading the way."

The question is: Which way is this road headed?

The best, and the rest
Yesterday, Clean Energy unveiled the first phase of a 150-LNG fueling station "American's Natural Gas Highway" project. By the end of this year, the company plans to have nearly half these stations up and running, pumping natural gas into tractor trailers in 33 states across the nation. Manufacturers are hurrying to build trucks capable of running on the fuel, too, with Navistar, Westport Innovations (Nasdaq: WPRT  ) , and Cummins (NYSE: CMI  ) all on board already.

Yet despite the heavyweight support being thrown at this new trend in energy, Japanese banking powerhouse Mizuho announced yesterday that it was initiating coverage of Clean Energy at "underperform." Why?

Guessing game
No one's quite sure. So far, no major media outlets have details on the Mizuho sell rating. But I think we can take a guess.

Right now, Clean Energy is not a happy camper, profits-wise. The company's trading at meaningless P/E due to its booking negative profits for the past 12 months. Once the final results are in, Clean Energy is expected to lose as much as $0.54 per share for 2011, then post another loss this year. In fact, even the analysts who do like Clean Energy admit that it probably won't book its first full-year profit until 2014.

And it gets worse. Building 150 natural gas refueling stations is an admirable goal, but it won't come cheap. Already, capital spending by Clean Energy is running to nearly $60 million per year. Add in losses from operations, and the company tops out at $72.5 million in annual cash-burn. And this is a firm with no cash balance to its credit, a company actually in hock to the tune of $129 million net debt.

Foolish takeaway
That's a worrisome trend. Clean Energy may be at the forefront of a new revolution in how Americans fuel their cars and trucks, but if so, it's at the bleeding edge of the revolution. Building out a network of fuel stations is going to cost big bucks. It will necessitate Clean Energy either going deeper into hock to its creditors or, more likely, issuing additional shares to get hold of the cash it needs -- diluting existing share values in the process.

My guess: This is at least part of the reason that Mizuho predicts Clean Energy shares will fall as low as $10 over the next year.

And my advice? If a 25%+ decline in share price doesn't scare you -- if you think that's just a pothole on the highway to natural gas success -- go ahead and buy Clean Energy today. But if you don't think you can stomach the drop (and I, for one, could not), you're better off sitting on the sidelines for now. If Clean Energy makes a go of this, there will be plenty of time to buy the shares once it's proven the business model is viable. Given my druthers, I'd buy the stock after the drop, not before.

Looking for a better way to play the new energy revolution? Read the Fool's special report: One Stock to Own Before Nat Gas Act 2011 Becomes Law, available for a limited time only.

Motley Fool newsletter services have recommended buying shares of Chesapeake Energy, Cummins, and Westport Innovations, but  Fool contributor Rich Smith does not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 330 out of more than 180,000 members. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (5) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 13, 2012, at 9:47 AM, little1lizard wrote:

    We Americans have the backbone to see this through with CLNE and if we had a good automaker that will sell more cars and maybe a motorcycle company with natural gas we could stop giving our money to people that hate us and would like to wipe us off the face of the earth.

    Lets embrace capitalism !

  • Report this Comment On January 13, 2012, at 7:25 PM, Avatar910 wrote:

    This is a company which deserves support. With the USA awash in so much NG we are seeing companies like Cheniere planning to liquify it and sell it to asia, we cannot let this abundance slip through our fingers.

  • Report this Comment On January 14, 2012, at 6:41 AM, glennga wrote:

    It is amazing how much "mis" and "dis" information is circulating about the "fracking" process. There is a whole pack of trial lawyers lurking in the shadows waiting to pounce on any part of this issue where they think money can be made. They have been quick to convince many property owners their drinking water wells have been contaminated with methane and other harmful substances as a result of frackiing. Independent tests funded by state governments have been negative or inconclusive. And then there is the Ohio earthquake. When all is said and done, I trust the LNG and related industries will prevail and fracking technology will greatly improve. Common sense, inexpensive, future energy

  • Report this Comment On January 15, 2012, at 6:38 PM, ken5ton wrote:

    Boone Pickens, CHK, and another concern have stepped up with $450 million ($150 million each) for the fueling station build out, AND there is the romance of the Nat Gas Act passing. I do not know if the Act is going to pass. It looks positive. Nat Gas at $2.80/MCF makes its use appear all the better. The Nat Gas Act and Keystone are both job builders too. Seems like the President would smell votes in each.

  • Report this Comment On January 17, 2012, at 7:24 PM, bobbyk1 wrote:

    I believe the nat gas will pass but I see no compeling reason to own the stock.What do they bring to the table that many other companies couldnt do.When the tide turns one of the big oil companies will get in the business.

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