Clean Energy Fuels (NASDAQ:CLNE) has come a long way since its founding in 1997 as Pickens Fuel Corp by CLNE backer T. Boone Pickens. It has signed up some of the biggest corporate names in America to utilize its natural gas offerings as fuel for their truck fleets. Actual cities are getting in on the game as well: over 8,000 city buses now run on natural gas fuels provided by Clean Energy.
Alas, the story is not all sunshine and roses. The company has failed to generate a GAAP profit since FY 2005 -- a year when net income of just $17.3 million was recorded.
Clearly Clean Energy Fuel's future is up for debate. Customers are there, profits and viability are not. Because of this dichotomy, we asked three of the Fool's best and brightest to weigh in and answer the question, just where will Clean Energ Fuels be in ten years?
Rich Smith: 15 years ago, Clean Energy Fuels didn't even exist. I'll go out on a limb and say that in 10 years, it might not exist -- again. In a word, I'm predicting "bankruptcy."
Here's why: Despite the well-known topsy-turviness of the oil and gas market, a clean-energy advocate in the White House, and a general fondness in the stock market for "alternative energy" stocks, Clean Energy Fuels has only managed to grow its revenues by about 35% over the past five years. Now, that's a perfectly acceptable growth rate for most companies, but it's hardly the kind of wildfire growth you'd expect from a company that only IPO'ed less than a decade ago.
More importantly, over all this time, and in spite of the respectable revenue growth rate, Clean Energy Fuels has failed to grow its profits at all. To the contrary, according to data from S&P Global Market Intelligence, from 2011 through the last 12 months, Clean Energy's annual net losses have more than doubled to more than $100 million a year.
What's more, analysts who follow the company don't see any chance of Clean Energy Fuels turning a GAAP profit on its business before 2019 (if then). With the rapid rise in popularity of electric vehicles (you say Elon Musk has how many pre-orders for his new Tesla III?!), who knows if there will even be a market for natural gas-fueled vehicles by the time 2019 rolls around?
Listen, I'm not saying it's all bad news at Clean Energy Fuels. Actual free cash flow (negative $50 million) is only half as bad as the GAAP numbers make things look. Cash levels are up, and debt levels are down. But the company still has more debt on its books than cash, is still burning the cash it's got, and profitability remains only vaguely visible on the most distant horizon.
Bankruptcy is a very real possibility for this company, 10 years from now.
Jason Hall: Just going on its substantial GAAP losses over the past several years, it's easy to understand why my esteemed colleague doesn't have much hope for Clean Energy Fuels (NASDAQ:CLNE). But I've followed the company -- as well as the industry it operates in -- quite closely for several years now. And my conclusion is that the company has shifted from a cash-burning, high-risk investment, into a great growth stock that Mister Market is missing.
Factor in a major reduction in the need for capital expansion after tripling its station count over the past five years, as well as a cost-cutting initiative that's slashed expenses, and the bottom line looks better every quarter:
One more thing: The company is paying down its debt, as you can see in the table above. By year-end, interest expense is on track to be 25% lower than in 2015, and total debt to be down another $100 million or so.
But here's what may be most important: In 2013, oil was consistently more than $100 per barrel, and Clean Energy sold about 213 million gallon-equivalents of natural gas. In 2015, oil was consistently selling for half as much (and still is today), yet Clean Energy sold 310 million gallons of natural gas; 50% more than it did when oil was twice as expensive.
Looking out a decade from now, Clean Energy Fuels could easily be a billion-dollar business. Not only has the company significantly grown through the worst oil downturn in decades, but it has only barely tapped the surface of the market. The heavy-duty trucking, public transit, and refuse industries alone consume somewhere around 40 billion gallons of diesel every year. The company could triple fuel sales over the next decade and still only be a tiny fraction of the potential market.
Considering the strong operational and financial improvements management has made over the past year, along with the value of its capital investments to support future growth, I think today's investors could do very well to hold for another decade.
Sean O'Reilly: My fellow Fools both make strong arguments. The bull case for Clean Energy Fuels revolves around the inherent leverage of its operations going forward, CLNE having invested hundreds of millions in natural gas fueling stations. The bear case circles around, in so many words, the obvious speculative nature of the company's value proposition ten years out. The company has failed to make a profit despite every possible advantage for an upstart alternative fuel purveyor. So, where am I casting my vote, you ask? At the risk of appearing (lower case) foolish, I have to side with the bull case.
It's certainly true that CLNE is in desperate need of generating a profit. All the sales growth in the world won't do anyone a lick of good unless the actual enterprise is in the green. However, it is consistent profitability, fueled by an increasingly diverse customer base, that I am counting on.
Clean Energy Fuels doesn't have random customers hoping to save a dime at the pump by equipping their cars to run on Liquified Natural Gas. The vast majority of Clean Energy's sales comes on a consistent basis, with the likes of UPS, FedEx, Lowe's, HP, and Waste Management, as well as dozens of cities that use CLNE to fuel some 8,000 city buses and 9,000 waste disposal trucks. We may be driving electric cars in the decade ahead, but electric garbage trucks are an entirely different story. In an increasingly environmentally friendly world, natural gas is the least-bad option as far as fossil fuels go.
The company recently became cash-flow positive and, given the obvious endorsement of some of the biggest fleet operators around, I'm willing to give CLNE the benefit of the doubt for the time being. Ten years from now, they will likely be a reasonably profitable enterprise, supplying hundreds of millions of gallons of natural gas derivatives to it customers.
Jason Hall owns shares of Clean Energy Fuels. Jason Hall has the following options: long January 2017 $5 calls on Clean Energy Fuels, short January 2017 $5 puts on Clean Energy Fuels, and long January 2017 $3 calls on Clean Energy Fuels. Rich Smith has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Clean Energy Fuels. 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.