Insiders are buying Clean Energy Fuels (CLNE, Financial). There is plenty of fodder for the cautious, though: the company needs to make high-interest payments, and profitability is not in sight. Yet it continues growing, moderation of some expenses may be helpful, and valuation metrics are supportive of the stock.
Records show that, on March 2, CEO Andrew Littlefair made a direct purchase of 17,800 shares. Such a statement made by a company executive, as opposed to a director, can be especially favorable. The following day, Senior Vice President for Corporate Development Barclay Corbus followed up and acquired 10,000 shares. The day after that, a director, Stephen Scully, indirectly bought 10,000 shares.
I anticipate the company to generate about $27.8 million in 2015 EBITDA. My projections are based on revenues and expenses continuing to grow at their 3-year CAGRs. SG&A is modeled to increase at 2.34%, although it has been guided to "Relatively flat" on the Q4 Conference Call.
Though struggling fiscally, the company has continued to enjoy government support. Clean Energy Fuels is a purveyor of green energy, and the alternative fuel excise tax credit ("VETC") may be authorized again by Congress. Environmental aspects of the business are in stark contrast to problems confronting the coal industry.
While CLNE shares have dropped in recent months with the decline in energy prices, the number of gallons that the corporation delivers continues to increase: at a yearly rate of 19.95% since 2010.
However, its product cost of sales has been rising slightly faster, at a 21.7% rate. As a result, gross margin tends to decrease. Thus, for the company to reach an inflection point in the next 12 months its margin would probably have to increase substantially, as product accounts for nearly 90% of revenues. Components of product cost of sales include cost per gallon of natural gas and the requirements to service and deliver gas. Natural gas prices are remaining low, which must have contributed to a higher 4Q14 gross margin, in combination with one full year's VETC credits appearing in one reporting period. (My model has gross margin as the mean of the 4Q and 2014 percentages).
Fundamentals behind continued growth are there. The recently issued Form 10-K, or annual report, can contribute to informed investment decisions. It includes information about key customer markets (other material is drawn from the Conference Call). Centralized fueling is focal, and higher sales at a stable number of locations could potentially increase product gross margin:
- Heavy-duty trucking: Signed deals with 66 truck operators, that are either new or expanding, projected to consume 14 million gallons annually. Deliveries +42% YoY in trucking. United Parcel Service (UPS, Financial) has the largest fleet in North America, and the company serves over 200 at 8 stations.
- Airports: Under pressure to reduce pollution. High volume of vehicle fuel is dispensed at a centralized location (delivery fleets, shuttles, taxis).
- Taxis and paratransit vehicles: many miles, high volume of refueling at centralized locations. Candidate for CNG.
- Refuse haulers: nearly 200,000 in the United States. High volume used at centralized locations. The company works with over 250 refuse fleets, representing some 9,000 vehicles. Company reports 43% YoY growth and 75% market share. Waste Mangement (WM, Financial), 4,000 trucks, and Republic Services (RSG, Financial), fleet of over 2,000 trucks, are key customers. The Cummins (CMI, Financial) Westport (WPRT, Financial) "CWI" 9 liter engine is used frequently.
- Transit agencies: 67,250 busses with stringent emissions requirements and limited fueling options. High volume at centralized locations. (CWI 9 liter engine is used).
- Government fleets: approximately 4 million domestic vehicles
- Industrial customers: CNG to facilities via NG advantage, which primarily serves the northeast. Sequential growth is anticipated. ($21 million in capital expenditures are budgeted).
Per the conference call, the company now can offer $0.75 to $1.00 of savings in cost per gallon over diesel to its largest customers, down from $1 to $1.50 when gasoline prices were higher. Fleet vehicles often use 20,000 gallons a year, though, so savings of $17,000 should still be significant. They are reported to allow for payback within two years in many cases.
Additionally, the company has no exposure to Europe. The trucking industry is notoriously cyclical, and economic data is supportive of a strong business cycle and economy. Also, while the strong dollar has bearing, it, too, is not as substantial as the effects being felt by many S&P 500 companies.
Our primary exposure to foreign currency rates related to our Canadian operations. ... If the exchange rate on certain assets and liabilities were to fluctuate by 10% from the rate as of December 31, 2014, we would expect a corresponding fluctuation in the value of the assets and liabilities of approximately $1.8 million (Source: Form 10-K).
At a multiple of only 1.6x estimated 2015 revenues, for the growing firm, a share price of $7.72 is supportable, based on 96.5 million diluted shares. The company currently has $1.16 billion in total assets and $437 million in stockholders' equity. Its market cap of $494 million is compelling and may prove undervalued.
Clean Energy Fuels is largely bankrolled by a guru, T. Boone Pickens, who is a well-known authority on the energy industry. He has $50 million in convertible notes that pay 7.5% and mature in 2018. Over 18 million of his shares are pledged as collateral to a loan. His total ownership stake is worth roughly 20% of the company.
Separately, $150 million in convertible ("SLG") notes mature next year, and while fiscal stability is a concern, overhang stands to be eliminated as they convert into shares priced at $15.
Accelerating sales and a stable customer base seem to be bankable for investors in Clean Energy Fuels. However, profitability is not in sight in fiscal 2015. Insider buying draws attention to some corporate strengths, might cause some to take notice, and perhaps portends favorable implications for shareholders.
