I have covered the natural-gas business at transportation leader Clean Energy Fuels Corp. (NASDAQ:CLNE) for a number of years. Over that time, I've also bought shares on several occasions, and frankly, it hasn't been a good experience. Combined, my investments before the start of 2017 are down almost 70% at recent prices.
However, so far this year, I've bought shares twice and nearly tripled my holdings in the company, and I am likely to buy even more before the end of the year. Why am I adding on to this historical loser? In short, because the company is stronger today, the balance sheet is in solid shape, and the potential for per-share returns is higher now than it has ever been.
Don't buy my thesis? Keep reading and I'll break down why, after years of being a losing investment, now is an excellent time to invest in the company.
The one thing that's continued to go well for Clean Energy Fuels
Numerous things have made the company a poor investment over the past few years, including debt struggles, expensive capital expansion spending that's been slow to yield returns, and major shareholder dilution that has killed per-share value. But the company's core business of selling natural gas to its transportation customers has continued to grow at a steady clip.
Here's a breakdown of the company's gasoline-equivalent gallons of fuel delivered each year since 2010:
|Year||Total Gallons Delivered||Percent Change (YoY)|
However, some of the LNG Clean Energy Fuels sells goes to utilities in bulk orders. This is an important business, but it's not the core growth focus. If we exclude renewable natural gas (RNG) gallons sold to bulk utility customers and focus on just the transportation fuel sales, the growth rates are even higher:
|Year||Vehicular Gallons Delivered||Percent Change (YoY)|
So far this year, fuel volumes are still growing, up 8% in total, and almost 9% to transportation customers through the first half of the year. This growth has continued, even as low crude oil prices have kept diesel and gasoline relatively cheap, compared with back when oil was over $100 per barrel. Clean Energy now delivers nearly three times more fuel to transportation customers than it did in 2010.
This has meant cash flow growth
Over the period mentioned, Clean Energy's gross profit dollars and operating cash flows have increased significantly:
Yes, there's a downside to these numbers in the past couple of quarters. Cash from operations was negative last quarter, in part because of a change in the company's structure following the sale of its RNG production business to BP in the first quarter, as well as the expiration of the volumetric exercise tax credit at the end of 2016, which management expects to be reinstated and made retroactive by year's end.
It's not just fuel volume growth, either: Lower expenses are set to pay off for shareholders
The sale of the RNG business to BP is indeed having some negative effects, primarily the cutting of per-gallon margin for its fast-growth Redeem RNG. However, there are some real positives as well. The company will be able to pay down as much as $180 million in debt from the cash raised, and will also see its operating expenses fall. Combined, Clean Energy's interest and operating expenses will fall as much as $11 million per year as a result of this transaction.
And the company has made cost improvement a major focus the past couple of years. Six months into 2017, the company's operating expenses fell $13.8 million from the first half of 2016, a 7% reduction. Interest expense -- and this is before any potential debt reduction from the BP sale proceeds -- is down $8.2 million.
Put it all together, and Clean Energy is set to see its recurring operating and interest expenses fall by more than $50 million per year, even as it continues to invest in station expansion and deliver nearly double-digit fuel sales growth.
Clean Energy Fuels is (finally) set to deliver shareholder value
I've lost a lot of money on Clean Energy over the past few years, but I have steadily watched the company and bided my time as management has worked through the debt, cut expenses, and continued to develop its station network and grow fuel volumes. And now management has the company positioned to deliver per-share returns for investors. That's why I've nearly tripled my position, and I intend to buy more before year's end.
It could backfire -- after all, it hasn't worked out very well so far. But I'm willing to take that risk, because the improvements in the company has lowered the risk, and the upside for years of growth remains very good.