Clean Energy Fuels (CLNE, Financial), the provider of natural gas has jumped 30% this year and its shares are trading close to their 52-week low. While, the prospects of Clean Energy look bright in the long run considering the fact that it’s focused on providing an alternative fuel in the form of natural gas. Also, Westport Innovations (WPRT) is working on to push its engines that run on natural gas, with the truckers as the primary target. So, going forward, Westport growth could give Clean Energy opportunity to blossom.
A clean road ahead
Given the fact that several big established markets like refuse and municipal transit are successfully fueling with natural gas for years and that the percentage of new natural gas refuse trucks and buses are projected to increase, so Clean Energy’s customer base and volume should grow in these markets.
There was a robust transition of the heavy-duty trucking industry to natural gas last year, with the Cummins Westport 12 liter engine becoming the key driver. There’re hailing orders from natural gas trucking companies all over the country, such as market leader UPS, which are placing orders ranging from a few test natural gas heavy-duty trucks to several hundred trucks.
Clean Energy rightly purchased IMW, a CNG compressor manufacturing company in 2010, with the expectation to significantly increase the demand for CNG fueling. Clean Energy has strengthened its prospects by making comprehensive managerial and structural changes, developing new product offerings, and beefing up the sales force post the acquisition.
Moreover, the penetration of natural gas vehicle ((NGV)) is much greater in other parts of the world than in the U.S., and there’s huge demand for high-quality compressors. IMW is capturing deals with the right foreign partners in the fast growing NGV markets of China and Russia which is the biggest development over the last six months for Clean Energy. There’s a robust demand from various markets in transit, refuse, airports, and fleet services for Clean Energy illustrating the company’s bright prospects.
Contract wins across the board
In the transit segment, the addition of 125 CNG busses and 35 CNG Para-transit vehicles last year by Southern Nevada Regional Transit Commission of Las Vegas which is a key customer of Clean Energy led to the jump in volumes by over 25% year-over-year to 2 million gallons a year. Further, Clean Energy recently won a contract to expand and upgrade two stations for the transit commission providing additional capacity to serve their growing fleet.
Clean Energy has commissioned a new station for LA Metro Transit, which operates over 2,200 CNG buses and uses over 35 million gallons annually. In addition, it signed a new 10-year operating and maintenance contract for four of LA Metro Transit’s locations that allows it to operate all 10 CNG bus fueling stations.
Clean Energy also landed with the operating and maintenance contract for the four CNG stations built for DART, Dallas Area Rapid Transit. These stations are projected to fuel 500 buses and are expected to use approximately 5 million gallons per year once they start operation. It expects to complete the construction of three stations in 2014 to service the expanding fleet of the City of Los Angeles transit buses.
Clean Energy also completed the new station for Norwalk transit in California and won the operating and maintenance contract for Long Beach Transit’s new station. Additionally, it renewed contract with Foothill Transit and Orange County Transportation Authority.
Finally, Clean Energy grabbed design, build, and operating contracts for two large transit properties that are transitioning to CNG. These are the Hillsborough Area Rapid Transit in Tampa, Florida, and the other for Kansas City Area which is expected to be operational in late 2014.
Expanding into new markets
The refuse segment of Clean Energy is also growing at a good pace, with volumes increasing 30% over 2012 and expanding geographically. On the contrary, Waste Management also expanded its CNG segment by adding over 800 trucks to its fleet in 2013, whereas Republic Services added 485 new trucks and 9 new CNG stations built during the year. Moreover, Clean Energy is also building stations for numerous local and regional haulers apart from large national players.
Clean Energy is penetrating into new markets as well, like the state of Missouri, where it has already completed a public/private station by partnering with Lee's Summit School District, which recently introduced approximately 140 CNG school buses. And, this deal is believed to be one of the largest single CNG school bus procurement deal in the nation.
Clean Energy is leading both CNG and LNG market and believed to benefit from them as the trucking market continues to mature, since both fuels will attract healthy demand. Moreover, many of these early adopting fleets are deploying CNG trucks in line with the expectations.
Clean Energy is keenly focused on expanding its list of trucking customers and shippers, and is providing them with all the help they need regarding which fueling solution works best for their particular application. Clean Energy announced a strategic partnership with GE's transportation finance unit to help support the trucking industry’s transition to natural gas fuelling and to assist potential customers offset the upfront cost of transitioning natural gas trucks by providing them with a fair market value lease and fuel rebate program.
Westport’s moves
Westport Innovations’ moves are bound to help Clean Energy’s prospects as well. Westport is investing aggressively in technology and product development with its partners. The company is on the path to develop a sustainable, competitive position in the alternative fuels market. Westport would most probably become the leading partner for OEMs as they launch new products with the expansion of the market for natural gas vehicles in the future. Hence, an increase in the number of engines sold by Westport will lead to an expansion of Clean Energy Fuels’ addressable market because it sells fuel for such engines.
Further, the solid growth prospects of the company are revealed by Westport’s earnings growth at a rate of 30% for the next five years.
Conclusion
Clean Energy Fuels looks to have gone down badly this year, but its long-term prospects are still quite healthy. Its earnings for the next 5 years per annum are expected to grow at a CAGR of 25% and this projection could prove to be even better with NGV vehicles gaining popularity. Hence, investors are advised to definitely consider Clean Energy for the long run and ignore the short-term loss.
