Why Clean Energy Fuels Has Been a Big Mover in 2012

The first half of 2012 is in the rearview mirror, and investors are gearing up for what looks to be an action-packed ending. There are bound to be some big winners -- and more than a few duds -- no matter what happens in the United States and abroad.

Will your favorite stock have its victory lap as we hit the home stretch, or will it get lapped? First-half performances can hold some clues, so let's look to the recent past to find out whether Clean Energy Fuels (Nasdaq: CLNE  ) deserves a place in your portfolio going forward.

First-half recap
Clean Energy has been one of 2012's more volatile stocks, as you can see here:

CLNE Total Return Price Chart

CLNE Total Return Price data by YCharts

Despite the stock's yo-yo movements, shareholders are still sitting on a comfortable gain for the year to date. Here are a few financial snapshots of its recent performance:

Market Cap $1.3 billion
Trailing-12-Month Revenue $301 million
TTM Net Loss ($70 million)
TTM Free Cash Flow ($150 million)
Most Recent Quarterly Revenue $74 million
MRQ Net Loss ($32 million)
MRQ Free Cash Flow ($54 million)
MRQ Revenue / Net Income YOY Change 13.8% / (220%)
P/E and Forward P/E NM / NM
Price to Free Cash Flow NM
Motley Fool CAPS Rating (out of 5) **** ( find out more by clicking here )

Source: Morningstar. NM = not material due to negative results.

What the numbers don't tell you
Many secondary nat-gas stocks, including Clean Energy's engine-conversion peer (and sometime rival) Westport Innovations (Nasdaq: WPRT  ) , have yet to fully recover from the rejection of a key legislative amendment this March. That defeat resulted in a long slide for both companies, which remain unprofitable despite steadily growing revenues:

CLNE Net Income TTM Chart

CLNE Net Income TTM data by YCharts

But just as these two nat-gas hopefuls can overreact to bad news, they can also overreact to good news. Late-spring reports of Westport's partnership with Volvo, on the heels of a firm relationship with Ford (NYSE: F  ) to provide engines for heavy-duty F-series trucks, began a rebound that's continued to this day. Oklahoma's statewide rebate initiative for nat-gas vehicles, begun less than a month ago, also gave both companies a big bounce.

The price of United States Natural Gas (AMEX: UNG) remains near all-time lows, which should be a boon for nat-gas converters and would-be suppliers. It may not last. Chesapeake Energy (NYSE: CHK  ) , with which Clean Energy's partnered to roll out its Natural Gas Highway, is frantically shifting its drilling focus toward more profitable liquids to counter dips in both top and bottom lines. After massive growth in operating nat-gas rigs through much of the past decade, the number of active rigs in the United States has now declined to its lowest point since 1999. That's bound to lead to an eventual rise in the cost of natural gas, eroding Clean Energy's competitive benefit.

I and my fellow Fools Travis Hoium and Sean Williams debated Clean Energy's merits earlier this year and found its business model lacking. Fool contributor Jeremy Bowman agreed with our bearish assessment last month, pointing out that the economics of nat-gas transportation and Clean Energy's capital-intensive expansion needs don't seem to justify investor optimism.

Clean Energy's next earnings report, scheduled for early August, should provide a clearer picture of its second-half potential. How long will Clean Energy's rebound continue? It's hard to say. However, there's no indication that investors will be rewarded with profitable results any time soon.

In some cases, it's better to invest in the sure thing rather than in a great gassy hope. There's one company that fits the bill, and it's the only energy stock you'll ever need. To find out what makes this hidden gem the best energy stock for your portfolio, click here for The Motley Fool's exclusive free report.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Chesapeake Energy, Westport Innovations, and Ford Motor. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy, Clean Energy Fuels, Ford Motor, and Westport Innovations. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. 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. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (2) | Recommend This Article (7)

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 July 06, 2012, at 12:17 PM, autoinsider wrote:

    One stroke of the legislative pen and this article is moot.

  • Report this Comment On July 07, 2012, at 4:14 PM, olddaddy63 wrote:

    I am am a geologist by education, an avid investor, and a prior oil & gas industry participant (employee there of). I am a proponent of the "Picken's Plan" and have followed it's progress, and read most every article pertaining to this energy program inititive that I find available. Given this background, I find this article, as well as another articiles by your organization a few days ago (also critical of CLNE), lacking in several areas. I'll profess in advance that I am long CLNE, and continue to keep an appreciable amount of my net worth invested in this company.

    Plz allow me to rebutt a few of your points and offer a differing opinion.

    Yes, there is no denying that CLNE has not yet turned the corner to become profitable, however, isn't this the very nature of a high-growth speculative company in an emerging technology or industry? Were not the many PC, internet, biotech companies that have become blockbuster investments of the past few decades in the same position during their early infancy years? It goes without saying that CLNE investors are taking a position on the adoption of nat gas as an alternative or bridge transportation fuel over time. I believe this will, and is in fact currently occuring, with or without fed/state tax incentives.

    The drop in nat gas drill rig operation/production to "1999 levels" is in no way an indicator of CLNE's future prospects, but rather simply shows the enormous abundance (i.e. glut) of nat gas that has been identifed in the past several years, which has driven the fuel to price lows not seen in a decade. The known and identified U.S.'s nat gas resources are currently so plentiful that many highly productive wells are being (and recently have been) capped for future production. Additionally, the development of known reserves have been put on hold, in order to allow for their future use (in times of higher prices). This is the same resource management techniques used by the oil industry to maximize profits. However, these E&P/resource development projects can be turned right back on in a matter of months once nat gas pricing becomes attractive and profitable again, which will happen given that current production has dropped off so abruptly. The nat gas rebound to near $3 is an indication that this process is already occurring

    Industry experts indicate that market forces will eventually equilibrate to a point where nat gas production is profitable again, which begins occuring at prices as low as $3/MMBTU; not all nat gas fields/wells are profitability at the same price because profitability is a function of each reservoir/wells characteristics, location/transport costs, etc.). Most industry participates acknowledge that the $4-6/MMBTU is a range where nat gas production is widely profitable. It's simple economics at that point; as the fuel rebounds to a profitable level, more wells come back on line and and more reservoir areas are developed to support the demand at a given price. Now that boutiful resources are known, E&P companies are smart enough to predict and produce the volume that will sustain the demand at a price range economically viable to the industry. As long as that price range remains within the range economically beneficial to nat gas conversion, there is an economic benefit to this altenative fuel. The payback period for the upfront conversion costs varies depending upon the current nat gas price. Current sub $3 prices certainly speeds up this process, but it is still viable at higher prices.

    The abundance of known resources suggests that the supply-demand equation for nat gas will be more stable in future decades, and the likelyhood of price spikes minimized.

    Other societal benifts to nat gas transport fuel converstion include improved air quality, domestic job generation (and economic stimulus), national security considerations (less dependence on other countries), and even the potential for a decrease in global oil price pressures (as the US uses or at least curbs it's use of international oil).

    With other big players like Shell Oil Co. joining the game, it's clear that large scale decision makers are seeing the future benefits of this conversion. It's been said that the barriers to entry into LNG or CNG terminal operation are low, giving the Shell's and Exxons of the world the ability to jump in the game. However, CLNE's long term alliance with the Flying J/Pilot corporation and ongoing implementation has given them a head start & important foothold at thousands of stategic trucking terminal locations along the countries interstate system.

    Some say that the biggest headwinds to the conversion tax incentives are the large industrial players (and their lobbiests) who currently are reaping the benefits of low nat gas prices (as alluded to in your prior article, are these the forces that a Romney Presidency would likely support to dampen the conversion efforts and CLNE's future?). Some say that big industry doesn't want to see wide spread nat gas powered trucking that would compete and bid up their cheap nat gas. That may be the case, but the long term benefits of the conversion are great enough that it will likely happen with or without the tax incentives. In fact, one middle-east missile detonation in the wrong city and associated oil price spike could be all thats required to accelerate this conversion (obviously, a very undesirable motivation). Why don't we take advantage of this low cost fuel now while its still an option, and not a necessity?

    Economic incentives have initiated the conversion process, but it's my belief that economic and societal benefits will carry it across the goal line.

    I say the glass is definately half-full (and gaining volume over time) in opposition to your half-empty analysis.

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