Clean Energy Fuels (CLNE, Financial) reported better-than-expected results in its recently reported fourth quarter with the company turning to profits from a year ago period of loss. The company had been sailing through troubled waters for quite some time and consequently the stocks had a downward momentum for more than two years. Moreover, a decline in crude prices has further added to its existing challenges.
Led by these headwinds, the company’s shares touched its all-time lows of $4.01 in January 2015, last seen in 2008. Although we are more focused on the fundamentals aspects, yet for a moment if we consider the technical side, the $4 level could be seen as a resistance as it had a turnaround when it last touched this level. Let’s see if its fundamentals have the same story to tell.
A closer look at the performance
During the quarter, Clean Energy earned a profit of 11 cents a share compared to a loss of 25 cents last year, while revenue rose 33% to $132.1 million year over year. Considering the depressing pricing environment, these are quite encouraging numbers. Not only this, it reported a 30% rise in gallons delivered, which is also a significant metric indicating year-on-year growth in its business.
Falling crude was a big headache born by Clean Energy. When oil prices were high, natural gas was comparatively cheap, and people preferred it as an alternative source of energy. But since the drop in crude oil price prices, the prospects for natural gas look hazy. The management, however, stated two main reasons for its confidence in the days ahead.
The way forward
First, the drop in diesel fuel price for truckers was comparatively less to the fall in prices of gasoline, since the truckers market has a significant contribution to its revenue. And second, with the drop in crude prices there was a substantial decline in natural gas prices as well although the reasons stated are true yet, if oil continues to fall, it will negatively impact the company.
There are solid facts to support this hypothesis, as the company bagged huge orders in the refuse market. For example, in 2014, Waste Management purchased more than 800 CNG trucks, which accounts for around 90% of their new truck purchases and the management anticipates such orders will keep pouring in in 2015 as well. The company currently has orders from around 250 refuse fleets, which represents more than 9,000 natural gas trucks.
Similarly, transit market is also a steadily growing segment for the company. Recently it entered into a major partnership with Jacksonville Transit Authority to build and operate a new CNG station that will support its transition of 100 buses from diesel to natural gas. Orders such as these keep pouring in not only from domestic markets but internationally as well. For instance expanding its business in Canada, the company opened a major station for BC Transit on Vancouver Island last year and now it has been commissioned to build a second station. This is a reflection of the customer satisfaction level it has achieved over time, which is a significant asset that will add value in the coming years.
In addition, the trucking market is extremely vital for its growth, and the management expects engine orders to continue to gain momentum. For the year, it signed deals with 66 trucking fleet operators that will use up around 14 million gallons annually. These developments will boost its business in the days to come. Currently, one of the major headwinds for the company is on account of falling crude prices.
Conclusion
But considering what the analysts are saying we can be quite confident that oil prices will not be depressing for a longer period especially as demand is expected to increase in the days ahead. In light of these facts it seems that Clean Energy has indeed hit the bottom and investments at current levels could be a profitable bet.
