Natural gas specialist Clean energy fuels (NASDAQ: CLNE) has been working for years to change that. Although her market capitalization is small – less than $ 500 million – she has a lot of big plans. Over the years, he’s hit more than his fair share of speed bumps.
However, Clean Energy’s efforts may ultimately pay off. Here’s why the action looks like a buy now.
The debt is paid
The company, co-founded by energy maverick T. Boone Pickens, started out with a “if you build it, they’ll come” model. It took a lot of debt to build the “American Natural Gas Highway,” lining a coast-to-coast highway with natural gas filling stations and placing more in major urban centers to enable businesses fleet to more easily switch from diesel to their fleet to natural gas.
But luckily, around the time the U.S. Natural Gas Highway was completed in 2014, the price of oil dropped from over $ 100 a barrel to around $ 30 a barrel. All of a sudden, the economics of moving from a fleet of diesel trucks to a fleet running on natural gas stopped making sense.
Clean Energy Fuels ended up with over $ 600 million in debt on its balance sheet. But this debt has essentially been repaid. During the company’s first quarter earnings call on May 7, CEO Andrew Littlefair said: “ [W]We paid off $ 35 million in convertible notes earlier this week and will pay off the last $ 15 million on May 14, leaving us with no debt other than equipment financing. “With $ 69.5 million in cash on the balance sheet, the company’s financial position appears solid.
It should be noted that Clean Energy was able to repay much of this debt using the cash it raised by issuing more shares. In 2014, the company had less than 100 million shares outstanding; by 2019, that figure had grown to over 200 million. Previous investors saw the value of their shares cut in half.
More recently, however, the company has been raising cash the right way – by selling fuel. Clean Energy has had positive cash flow since 2018 and even managed to generate a profit of $ 33 million in the first quarter of 2020. Before the pandemic hit, its fuel sales volumes were growing steadily, especially for its Redeem biofuel. Redeem’s sales increased 30% in 2019 and are expected to continue growing once this health crisis is over.
The gas is clean
As the first renewable natural gas (RNG) fuel available on the market, it’s hard to overstate the importance of Redeem for the future of clean energy. Most biofuels, such as ethanol and biodiesel, are primarily used as additives to traditional gasoline or diesel. Redeem, on the other hand, can be used on its own as a replacement for compressed or liquefied natural gas.
Derived from methane captured in landfills and farms, Redeem is considered carbon neutral and can even be considered carbon negative. It has proven particularly popular with companies that own large fleets of trucks and are trying to meet emission reduction targets. In 2019, for example, shipper UPS signed a seven-year contract with Clean Energy for 170 million gallon equivalents of Redeem, the largest GNR purchase ever made in the United States.
And Redeem isn’t the company’s only RNG initiative. As part of a major development, Clean Energy joins forces with an oil major Chevron to supply RNG to trucks at the ports of Los Angeles and Long Beach. Shares of Clean Energy have risen about 7% since the news broke on July 7.
The stock is convincing
Even after the stock price surge following Chevron’s announcement, Clean Energy’s stock still looks compelling. For all the hype from Tesla on its planned electric semi-trailer, or newcomer NikolaWith ambitions to make fuel cell electric semi trailers a reality, the only renewable fuel trucking option on the market today is a natural gas powered semi trailer using RNG fuel.
As an investment, this title is not without risks. It is certainly possible that the company will experience more speed bumps in the years to come. Right now, however, clean energy fuels seem to finally be turning the corner.