What happened
Shares of Clean Energy Fuels (CLNE 8.00%) closed up 3.9% on Tuesday after investment bank Raymond James upgraded the stock from "outperform" (i.e., buy) to "strong buy" -- while leaving its price target flat at $6.
So what
Clean Energy Fuels provides compressed natural gas (CNG), liquefied natural gas (LNG), and renewable natural gas (RNG) for use as fuel in medium- and heavy-duty trucks. It's the third of these categories that provides the foundation for Raymond James' optimism.
As the Raymond Jams analyst explains, Clean Energy is "on the cusp" of ramping up production of its own RNG -- generally speaking, biogas generated from the decomposition of organic waste -- to supplement its supplies of natural gas fuel. At the same time as Clean Energy is ramping production, it's also awaiting confirmation that it is entitled to claim a "clean fuel production credit" from the IRS, known as Section 45Z.
According to the section, the "credit" in question appears to be $0.20 per gallon of RNG produced -- which doesn't sound like a lot -- but according to RJ, it will provide a "massive boost to the profitability of RNG projects ... starting in January 2025," as The Fly reports.
Now what
And Clean Energy Fuels could certainly use a "massive boost" to its profits, because at last report, it didn't have any profits -- and indeed, hasn't reported a profit since 2019.
Will Section 45Z be enough to change that? Well, in the company's most recent earnings report, Clean Energy noted that it produced and sold 58.6 million gallons of RNG in the second quarter. Times $0.20 per gallon, that should add $11.7 million to Clean Energy's bottom line every quarter, or nearly $47 million per year -- or even more, given that it's "on the cusp" of expanding production.
Granted, that won't be enough to entirely overcome the $76 million in losses that Clean Energy has reported over the last 12 months. But it's a start.
