The Potential Stock of the Decade

By Ryan Guenette - August 22, 2012 | Tickers: CLNE, FGP, NGL, UGI, VVC | 0 Comments

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The national average gallon of gas costs $3.72, and has shown now exhaustion from its long run upward. On the other hand, the national average gallon of natural gas costs $2.13. Trucks and cars save $1.59 a gallon on fuel costs if they are capable of using natural gas, so it is of no surprise that many of the world’s largest trucking fleets are converting to natural gas.

Waste Management stated that by 2017, they expect to be burning more natural gas than diesel. Natural gas models costs about $30,000 more than the conventional diesel models, yet a projected $27,000 in savings per year is expected. Waste Management is not alone. Ryder Systems Incorporated, United Parcel Service Incorporated, AT&T Incorporated, Wal-Mart Stores Incorporated, and The Coca-Cola Company have all unveiled plans to convert its transportation division to run on natural gas because as the vice president of Ryder Systems puts it, “The economics favoring natural gas are overwhelming.” With this new coming wave of natural gas trucks and cars, Clean Energy Fuels Corporation (NASDAQ: CLNE) will be forced to expand. Clean Energy is a leading provider of natural gas for vehicle fleets in the United States and Canada, owning, operating, and/or supplying 273 stations. So why is this opportunity potentially the stock of the decade?

Liquid Fundamentals

In 2009, Clean Energy reported earnings per share of -$0.60. In 2014, the average analyst consensus believes Clean will report earnings per share of -$0.19. This represents a 68.33% increase in earnings per share over 5 years, yet the company is still underwater in 2014. This is extremely troubling as a company that is losing money has to rely on outside funding, and has nothing to show for all its efforts. Fortunately, in 2015 Clean Energy is set to begin to make money, estimated to earn $0.19 per share. While all Clean Energy currently has are hopes that one day it will be profitable, its sales growth is tremendous. From 2009 to 2014, Clean Energy’s compound annual growth rate (CAGR), for its sales, is 34.36%, a tremendous feat. Finally, the company does not pay out a dividend and has not expressed any plans to begin paying out one in the future. In conclusion, despite the fact that Clean Energy is not set to be profitable until 2015, it possesses astonishing sales growth, and if it is able to improve margins, may be profitable sooner than later.

The chart below displays Clean Energy’s sales, operating profit, net income, net margin, operating margin, and earnings per share over the coming years.   

Long-Term Potential

A major rallying point of the Romney plan has been his promise to release America from the grasps of Middle Eastern and Venezuelan oil dependency. While this promise is nearly impossible to implement in 8 years, a major step in the right direction would be promoting vehicles that run on natural gas. There are over three million heavy-duty trucks rolling on the roads of America today. Combined, these trucks consume over 25 billion gallons of gasoline per year. If every truck was converted into a natural gas consuming truck, there would be an estimated $39.75 billion in savings. Clean Energy is the leading provider of natural gas in the United States, so even if they captured 10% of the potential market, their revenue would multiply by 20. Not every heavy-duty trucking fleet will convert to natural gas, as the upfront costs are well north of regular diesel models, yet the annual saving will help fund the purchase. The monumental shift to natural gas has already begun, but has a huge way to go. If Clean Energy cleans up their margins, I have no doubt the company can double or triple.

The chart below displays the vast potential the fundamental shift to natural gas could unlock.     

Cleaner, Greener, and Meaner

Compared to some of Clean Energy Fuel’s most prominent competitors, such as: UGI Corporation (NYSE: UGI), Vectren Corporation (NYSE: VVC), NGL Energy Partners LP (NYSE: NGL), and Ferrellgas Partners LP (NYSE: FGP), Clean compares relatively in-line.

In terms of growth, NGL tops the industry, while Clean stands in the middle of the industry. All companies, except for Clean Energy, pay out dividends, with FGP possessing the largest dividend, and NGL possessing the fastest growing dividend. In the fundamental ratio comparison, VVC trades with the most attractive ratio. UGI appears undervalued when growth is taken into account. In the net profit margin comparison, Clean stands out to the downside, while VVC stands out to the upside.

The Foolish Bottom Line

Clean Energy Fuels is strictly a speculation play. It is currently not making money, and is not set to start making money until the year 2015. Unfortunately, the shift to natural gas is a long and strenuous process, as in these difficult economic conditions, not all companies are willing to spend the extra money it costs to improve their fleet. However, the potential savings are massive, and it is something businesses will be unable to ignore in better times. Converting to natural gas will unlock America from Middle Eastern oil dependency, and will save companies of America millions upon millions. Despite these facts, big oil companies will fight extremely hard to combat the conversion to natural gas, as it threatens their profits. The foolish bottom line is that if you are a long-term investor in search of a company that could potentially offer explosive gains, than Clean Energy Fuels is one of the best speculative plays out there, but it carries significant risk.    

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