Did Westport Innovations Just Run off the Road?

Typically when a company forecasts lower sales or profits, its stock usually takes a hit. It's not always easy to tell whether it's having a fire sale or burning down its own house. Maybe it is time to get out -- or maybe it's time to buy more!

Natural-gas-powered-engine maker Westport Innovations (Nasdaq: WPRT  ) gave investors a bit of a fright the other day when it said full-year revenues were going to come in below previous forecasts. A lack of sufficient liquid natural gas infrastructure was causing original equipment manufacturers to cut back inventories sharply, and customers were delaying decisions on completing orders. Revenues for 2012 would now be in the range of $340 million-$350 million compared to previous guidance of $400 million-$425 million.

The stock initially dropped 10% on the news, but it quickly bounced back and ended down just 1% on the day. But don't blindly follow those who are selling (or buying): You still need to do some research. We need to use the announcement as a jumping off point for additional research.

Westport Innovations snapshot

Market Cap

$1.5 billion

Revenues (TTM)

$376 million

1-Year Stock Return

(11%)

Return on Investment

N/A

Estimated 5-Year EPS Growth

30%

Dividend and Yield

N/A

Recent Price

$28.41

CAPS Rating

*****

Source: FinViz.com. N/A = not applicable; Westport doesn't pay a dividend.

If you build it, will they come?
It comes down to the age-old question: Which comes first, the chicken or the egg? Do you first build the infrastructure necessary to support natural-gas-powered vehicles and hope someone comes along and actually provides the cars and trucks to use it? Or do you hope that demand for vehicles keeps pace with the stations required to refuel them?

Between Westport and Clean Energy Fuels (Nasdaq: CLNE  ) , the two have been trying to create demand and infrastructure in tandem, but it seems initial demand outpaced supply of stations and now vehicle makers are scaling back their growth plans. Clean Energy's stock also pulled back, falling 8% yesterday.

Plans to have around 70 liquid natural gas roadside stations by the end of this year -- and more than double that number by the end of 2013 -- now seems a little too ambitious. Analysts have also contended there needs to be thousands of stations nationwide for the market to be viable.

Growth engine stalls
Vehicle manufacturers from Ford (NYSE: F  ) to General Motors (NYSE: GM  ) , and heavy equipment manufacturers like Caterpillar (NYSE: CAT  ) , have contracts with Westport to make engines for their cars, trucks, and commercial vehicles. But earlier this month truck-wheel maker Accuride (NYSE: ACW  ) reported orders were plummeting and it had to take production to a "screeching halt" after Caterpillar in particular cut back orders. The global economy is much weaker than it anticipated and its dealers are reducing inventories rather than place new orders so it will cut production until orders and inventories are aligned.

Less affected thus far is Cummins (NYSE: CMI  ) , which is a partner with Westport in the development of nat-gas engines, but which recently decided to strike out on its own to manufacturer engines because the market looked so promising. Now that might not be so certain.

Running off the road
Analysts have cut Westport slack over the years on its inability to produce a profit so long as it was growing revenues while the industry grew up around it. However, now that its sales are contracting, the engine maker won't be getting any free rides from Wall Street as losses probably will explode.

I ended my hugely successful outperform rating on Motley Fool CAPS for Westport in September, when it seemed the market for alternative vehicles was contracting, whether it was from natural gas, electric, or other fuel sources. While that CAPScall might have been prescient, the 180,000 member-driven investor community provides a real-time means of testing out investment theories by translating informed opinion into stock ratings of one to five stars. The engine maker still carries a coveted five-star rating at the moment, but tell me in the comments box below if you think Westport Innovations will be able to jump-start growth anytime soon.

The movement toward alternative energy is still holds lots of long-term potential and Clean Energy Fuels can still make a big impact on what may become an essential industry. Read all about Clean Energy Fuels in our brand-new report. Just click here to get started.

Rich Duprey has no positions in the stocks mentioned above. The Motley Fool owns shares of Clean Energy Fuels, Cummins, Ford, and Westport Innovations. Motley Fool newsletter services recommend Clean Energy Fuels, Cummins, Ford, General Motors Company, and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | 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 November 01, 2012, at 2:56 PM, fiftyone49 wrote:

    While this is not the best news for westport, I think the way the stock price reacted tells the whole story. Investors are not buying this company for what they are doing right now, but rather for the long term potential. The recent deal with Tata Motors shows the enormous potential for this market. Also, the political scene seems to be moving in favor of natural gas, which can quickly move things forward in westport's favor. The bottom line is I'm using this dip to add to my position.

  • Report this Comment On November 01, 2012, at 3:19 PM, Calimesa wrote:

    I was stationed on Okinawa in the early 80's and all the taxis ran on NatGas...or was it propane...maybe mainland Japan was the same...either way the point is that these engines have been around for a long time. It just hasn't hit the main stream yet but it will, it's inevitable. WPRT is a long term play and has to be because evolution is a slow process.

  • Report this Comment On November 01, 2012, at 3:26 PM, rustyvec wrote:

    I would agree with fifty-one49's take on this. The author congratulates himself on being "prescient" in pulling back his guidance on Westport as the gas engine market began to contract. But if you're a believer in the NatGas equation for long-haul trucking (as I am) then you know full well it's a long-haul game. Short-termers should not be investing in this stock.

  • Report this Comment On November 01, 2012, at 6:32 PM, 1297US12 wrote:

    With my head in the sand and the hope of the hopeless I still believe in CLNE and WPRT for the future, I was just hoping it would be my future.

    I can always make a buck but I need to breathe while doing it.

  • Report this Comment On November 01, 2012, at 9:24 PM, savanna1 wrote:

    Stay with this one. Transformation will happen before

    T.Boone passes.

  • Report this Comment On November 01, 2012, at 10:08 PM, CTFisherman wrote:

    I look at WPRT as a stock to hold onto for the long run. It may take a few years for the infrastructure to catch up but once it does, I'll be happy about owning it. The use of NG makes a lot of sense to me. I expect to keep buying shares as the price slides.

  • Report this Comment On November 02, 2012, at 12:47 AM, 13CROSSBONES wrote:

    Some states are promising to buy thousands of natural gas fueled vehicles fueled vehicles, cng I believe. This will help stop the bleeding. In the OH,PA,WVA area, I think $CHK & GE are teaming up to give $CLNE a run for their money.It may be a bumpy ride upwards.

  • Report this Comment On November 03, 2012, at 12:39 PM, robmxa wrote:

    There sales will still be up 30% yoy. What are they saying? I think they are seeing less growth than they anticipated but they are still on a high growth path right now.

    Also expect this is a setup. Lower expectations now so that they can more easily exceed them.

    I will buy more if this goes down. NO fear here.

  • Report this Comment On November 05, 2012, at 12:13 PM, 102971 wrote:

    I'm still a buyer of WPRT and if it drops further I will add to my holding.

    I expect them to beat the revised lower revenue forecasts which should give the stock a boost.

  • Report this Comment On November 08, 2012, at 5:51 PM, artpolva wrote:

    I think the real question is: can Westport stay alive long enough for the stations to be put in place? Can the capital be raised to put the stations in place in the current economy?

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