I can't help smiling at fellow Fool Brian Stoffel's brilliant take on Westport Innovations (Nasdaq: WPRT), as it crushes the belief that everyday automobiles don't run on natural gas. Here's a loss-making company that requires your immediate attention, with its hot business line and superb future potential. So what if Westport's losses have widened? Its burgeoning revenues and tie-ins are way too impressive to be ignored.
Winds are changing
Natural gas hasn't crept into a majority of vehicles yet, whether because of lack of popularity or a dearth of refueling stations. But things may be changing. Automakers are getting a little more comfortable with natural gas/gasoline hybrid vehicles, and oil giants are increasingly keeping natural gas fueling stations on their investment agendas.
For example, Chesapeake Energy's (NYSE: CHK) initiative to invest $1 billion in natural gas infrastructure and fueling stations over the next decade shows how confident it is about the future of natural gas. It's giving money to Clean Energy Fuels (Nasdaq: CLNE) to construct 150 natural gas fueling stations along interstate highways. Just a few days ago, Chesapeake CEO Aubrey McClendon openly advocated for natural gas as a fuel, stressing how the U.S. government should promote its use as a highway transportation fuel.
Meanwhile, ConocoPhillips CEO James J. Mulva said a few months back that natural gas has become a major portion of his company's portfolio.
And then there's Westport, with its recent joint marketing agreement with Royal Dutch Shell (NYSE: RDS-A) to extensively market liquefied natural gas as a viable transportation-fuel alternative. Following this agreement, I won't be surprised to see the Big Oil companies getting on the natural gas bandwagon more aggressively. If that happens, it's great news for Westport, because vehicle makers will get involved, and when they do, many will turn to Westport. Already, Westport fixed its roving eyes on General Motors during its first quarter, and the two companies agreed to develop advanced natural-gas-engine technology. And in its second quarter, Westport bagged a deal with Ford (NYSE: F) to supply its new, advanced bi-fuel system for Ford's pickup trucks.
While both of these automakers already feature in competitor Fuel Systems Solutions' customer list, deals with Westport indicate how serious the auto giants are getting about natural gas. They certainly aren't shoving Westport aside.
Westport has also acquired Alternative Fuel Vehicle of Sweden AB, the sole supplier of natural gas fuel systems to Volvo. This move will extend Westport's technology to another big automaker and deepen its foothold in Europe. Expecting a quick integration, Westport thinks this acquisition should add approximately $1.5 million to its forthcoming quarter's revenues.
On top of all this, there's the NAT GAS Act -- which would add natural gas tax incentives -- remaining as a possibility. Things could turn even juicier for Westport.
On a roll
Although Westport's revenues grew an astounding 80% from the year-ago quarter to touch $81 million, its losses widened to $13.2 million from $6.2 million year on year, partially because operating expenses rose to $28.5 million compared with $16.7 million a year ago. But research and development are an important component of these expenses, with Westport increasing its R&D spending by 67% compared with last year's second quarter.
Westport's joint-venture business with Cummins (NYSE: CMI) did extremely well in the last quarter, and its contribution to Wesport's bottom line is on the upswing. Revenues surged 59% to $49.2 million, as the North American refuse-truck market got stronger. Given Cummins' stronghold in the trucking industry, you can imagine what a revolution this could bring about in the entire trucking industry.
Westport's joint venture with China's largest heavy-duty engine maker, Weichai Power, is getting stronger as well, with 90% higher shipments in the second quarter compared with last year. Westport is also developing new technology to be used in Weichai's engine platform, which is expected to be rolled out next year.
The Foolish bottom line
I forgive Westport for maintaining the red ink on its books, because I believe its R&D investments will pave the way for future profits. And when you have billionaire George Soros increasing his investment in Westport, you know there's a lot brewing underneath.
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- Add Westport Innovations to your stock Watchlist.
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- Add Royal Dutch Shell to your stock Watchlist.
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