With a decline of less than 1% in share price, Clean Energy Fuels (CLNE -1.22%) stock suffered less than most stocks in yesterday's New Year's hiccup. Today, it's rising more than most -- a lot more.
As of 11 a.m. EST, stock in the compressed and liquefied natural gas fuels provider is soaring 10.6%, and for that, you can thank the friendly analysts at investment bank Craig-Hallum.
This morning, Craig-Hallum announced it is doubling its price target on Clean Energy Fuels stock to $12 a share. Clean Energy stock closed at $7.82 per share on Monday.
In its note, covered on StreetInsider.com this morning, Craig-Hallum explains that it's encouraged by continued growth in fuel volumes delivered through 2020, by Clean Energy's July partnership with Chevron, as well as by Congress' reinstatement of an alternative fuels tax credit (AFTC) for 2021, which will benefit Clean Energy's business.
"A growing number of fleets [are] interested in a low emissions and cleaner-than-electric solution" offered by Clean Energy, says the analyst. The extension of "low carbon index" (CI) fuel credits in particular, says Craig-Hallum, will add $20 million in high profit margin revenue to Clean Energy's top line in 2021, and there's also the potential that Clean Energy could enjoy "a longer-term extension [of these credits] in some form."
The $20 million in new revenue from Congressional subsidies will only add about 6% to Clean Energy's annual revenue stream. However, because these subsidies will drop almost entirely to Clean Energy's bottom line, there's the potential for an outsize benefit to Clean Energy's profits. A $20 million boost to net income could theoretically cause earnings to explode nearly 60% higher this year (as compared to trailing net income).
That being said, even if you assume that 2021 earnings are, say, all of the net income earned over the last 12 months ($34 million), plus Craig-Hallum's estimate of $20 million more in alternative energy credits ($54 million total), at a current market capitalization of more than $1.7 billion, this all values Clean Energy Fuels stock at more than 31 times what it might (or might not) earn this year.
Even in a market that has gone ga-ga for renewable energy stocks, that seems a pretty rich valuation to me.