Why Is Clean Energy Fuels Down Almost 10% in July?

After a strong run, Clean Energy Fuels shares have fallen sharply in recent weeks, and on essentially no news or information. What gives? Is competition from Integrys Energy Group -- which has agreed to be acquired by Wisconsin Energy Corp.-- and Questar Corporation spooking the investor world?

Jul 11, 2014 at 4:00PM

Natural gas for transportation refueler Clean Energy Fuels (NASDAQ:CLNE) has taken investors on a roller coaster during the past several years and, after a strong run from early May to the end of June, shares were up more than 30% before coming back down to earth so far in July:

CLNE Chart

CLNE data by YCharts.

Since early May, the stock has been performing well; so what's got the market spooked? There really isn't any news of note out there beyond a few press releases about new station openings, and expanding agreements with existing customers. Is Mister Market growing concerned that Questar Corporation (NYSE:STR) and Integrys Energy Group (NYSE:TEG) -- which was recently acquired by Wisconsin Energy Corp (NYSE:WEC) subsidiaries Questar Fueling, Questar Gas, and Trillium CNG, which are better capitalized and stronger financially -- will pose a bigger threat than anticipated? 

Buy, sell, or hold? With earnings just a few weeks away, what should investors do? Let's take a closer look. 

Integrys Energy Group, Wisconsin Energy Corp join forces
As you can see in the chart above, Integrys Energy Group's stock is up 18%, due to the fact that Wisconsin Energy Corp is acquiring it and consolidating a lot of the operations together. Integrys had previously announced that it was also divesting itself of Integrys Energy Services, which is one of its non-regulated fuel and electric marketing businesses. I bring this up because it's not 100% clear what the new company, which will be called WEC Energy Group, intends to do with nonregulated subsidiaries like Trillium CNG.


Trillium CNG operates 56 stations, 36 of which are public. Source: Trillium CNG

As it stands now, Integrys has committed $121 million in capital expenditures to Trillium during the next three years in order to reach the goal of at least 100 natural gas refueling stations by the end of 2016. Frankly, until the integration of these two companies is complete, which could take a considerable amount of time, it's hard to predict exactly what will happen with Trillium. 

Management made it clear in the press release that the dividend is the focus. Before the buyout sent Integrys' stock up, it yielded more than 4.5%, and management said in the press release that it would keep the dividend "neutral" for Integrys shareholders in the new company. This means that it would be increasing the dividend versus the dividend paid by Wisconsin Energy Corp. While I'm not willing to make any predictions, it would seem reasonable to expect the new WEC  Energy Group to toe the line on Trillium CNG for now. 


Questar Gas locations. Source: Questar Gas

Questar a double threat
Questar is a threat because it operates both a regulated natural gas vehicle refueling business as part of its regulated Questar Gas in Utah and Wyoming, and Questar Fueling, its unregulated subsidiary, which can operate beyond the regulated limits of Questar Gas. As a fully integrated producer, distributor, and marketer, Questar Corporation is deeply involved in essentially every section of the natural gas value chain. Whether this pays dividends in the long run as a competitive advantage remains to be seen. 


Source: Questar presentation

To date, Questar Gas owns 29 stations in Wyoming and Utah, for a total of approximately 60 stations in this territory. As of May, Questar Fueling had two stations open, with another seven scheduled to be completed in 2014. 

What about Clean Energy Fuels? 
Clean Energy Fuels is the only "pure-play" in the natural gas refueling business, and seeing these large natural gas utilities getting into the game can be scary. But it's important to remember that:

  • Competition is a reality in any good business opportunity. 
  • It's also validation that the opportunity is real. 

The thing is, it's tough for regulated utilities to grow, especially in developed countries like the U.S. This is why you see Wisconsin Energy Corp. acquiring Integrys Energy Group -- there just isn't anywhere to expand the business beyond a burgeoning industry like NGV refueling. Beyond that, it's important to remember that these utilities aren't getting into this business to lose money, so the expectation that they'll have pricing power over Clean Energy Fuels isn't realistic, either. Frankly, the playing field is relatively level when it comes to wholesale gas prices. 


Clean Energy Fuels' public stations include 28 LNG stations already open. Source: Clean Energy.

What is different about Clean Energy Fuels' offering versus its utility brethren is that Clean Energy is bringing a suite of offerings to the table, including compressed natural gas, or CNG, liquefied natural gas, or LNG, and Redeem, its brand name for renewable natural gas, or RNG, which is produced at landfills and from other sources of biowaste. To date, its competitors are only offering CNG, which, while being a compelling fuel for a lot of applications, doesn't meet the needs of every industry or application. 

This competitive advantage for Clean Energy Fuels is very real, and a positive that investors should seriously consider. During the past year, others -- with dubious intent -- have written that Clean Energy is betting on LNG, while ignoring that it is also the largest supplier by far of CNG for transportation in North America, and this part of its business is growing at a 20% rate. 

Final thoughts: looks like a buy at these prices 
The stock was pushed up sharply a few months ago by both a strong earnings report -- fuel deliveries were up more than 20% across the board -- and an analyst upgrade. Since then, the only news has been the opening of several more LNG refueling stations, and refueling agreements with existing and new customers, in both CNG and LNG. Management has also said that the margins they are seeing should substantially reduce losses going forward -- largely a product of heavy investment in new station construction. In short, the stock's not down for any "real" reason. It's just down. 

As to Questar Corporation and Integrys Energy Group's and Wisconsin Energy Corp's soon-to-be WEC Energy Group, these are solid plays for investors looking for consistent and predictable income streams, but not sources of growth. As to their posing a threat to Clean Energy Fuels? I don't buy it at all. 

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Jason Hall owns shares of Clean Energy Fuels. The Motley Fool recommends Clean Energy Fuels and Wisconsin Energy. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers