OK, I get it: Plans don't always turn out the way we want them to, and even the best laid ones can often fall flat. This seems to be the case with Clean Energy Fuels Corp. (NASDAQ:CLNE). Clean Energy has the backing of billionaire oilman T. Boone Pickens, and it's attempting to distribute and deliver an abundant, domestically sourced fuel that also happens to be cleaner for the environment. Sounds like a win all around, right? Well, sort of.
Changing the status quo has inherent risks. Taking that job in Reno instead of the one in Minneapolis. Buying a house versus continuing to rent and saving just a little bit more for a down payment. Asking that guy or girl out on a date. And, of course, switching engine types from diesel to an arguably superior but not fully accepted alternative fuel like liquefied natural gas (LNG). Imagine you run a fleet of buses for a city or a waste removal operation. Do you want to be on the hook for spending mountains of cash on trucks with uncommon engines? The merits are there, but it takes courage. Fortunately, such courage isn't lacking at some of the country's biggest enterprises.
Slowly gaining traction
As Clean Energy Fuels noted in an investor presentation two months ago, it continues to add to its list of clients. The company has over 950 unique fleet customers, and the list includes names like Waste Management, FedEx, 39 city airports, and more than 8,000 city buses. Even better, this is just the tip of the iceberg:
Obviously, these organizations have done their due diligence, and all concluded that fueling fleet trucks with natural gas products was the smart move.
Government involvement in any economic or business trend can be a big deal. This simple fact coupled with natural gas' abundance, relative cleanliness, safety, and cost-effectiveness all add up to an optimistic long-term outlook for its growing adoption. Today, 35% of new city transit vehicles (read: buses) are powered by natural gas -- a decision cities across the country are clearly making for those aforementioned reasons. Some 8,000 new refuse trucks were sold in 2015: 55% of them are hitting the road every day with fuel tanks full of CNG or LNG.
In addition to the choices of city and state governments, there are moves being made at the federal level. In July 2015, President Barack Obama signed into law a measure that equalized the taxation, on an energy equivalent basis, on natural gas relative to good old-fashioned diesel. Natural gas seems to be something that both private industry and the public sector can get behind -- the importance of which cannot be understated.
Foolish final thoughts
So will Clean Energy Fuels be profitable someday? The answer appears to be yes, although the timing seems to be open to debate. Of the analysts polled by S&P Global Market Intelligence, the average forward earnings estimate doesn't point toward GAAP profitability until fiscal 2018 -- and even this estimate calls for EPS of just $0.03 per share.
The outlook does improve by the following year, when the average estimate calls for EPS of $0.36. That's a long time to wait for profits, but because of Clean Energy's market leadership position and its client base, the promised land may be worth waiting for. The capital requirements of building a fuel distribution business are huge, due to all the non-cash depreciation expenses. It's important to note that amid all this red ink, the company is practically break-even on a cash flow basis. For the quarter that ended Sept. 30, 2015, Clean Energy generated $1.8 million in cash from operations and spent $14 million on capital investment, yielding negative free cash flow of just $12.2 million. Not what an investor wants to see, given the debt load and interest payments that come along with it in Clean Energy's case, but the situation does not seem to be dire. Bottom line? Clean Energy will be posting profits -- just don't ask me when.
Sean O'Reilly has no position in any stocks mentioned. The Motley Fool 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.