If you build them, they will come
The march forward works in the favor of Clean Energy Fuels Corp (NASDAQ:CLNE), which recently reported earnings. These came in with some whopping top line growth due to a large number of credits that were signed into law in 2013, but applied retroactively to 2012. So, top line growth is not incredibly interesting considering the credits, but the effect of the credits should not be understated. Clean Energy Fuels Corp (NASDAQ:CLNE) is involved in building the natural gas infrastructure in the United States. That is a capital intensive undertaking that will not result in upside for some time.
The country is still awaiting heavy-duty trucks transferring over to LNG, but progress is being made. UPS plans on getting 700 LNG trailers by the end of 2014. That is a substantial investment, and the company is building its own refueling stations as well. A company like Clean Energy Fuels Corp (NASDAQ:CLNE) has a lot of potential once LNG gets into full swing. In the mean time, they must continue building the stations. I mentioned in a previous article that the solution to the chicken and egg problem of natural gas vehicles and natural gas stations is to do just one of them, and it had to be refueling points. You cannot just have a bunch of vehicles that cannot go too far because there is nowhere to refuel.
I am not currently interested in Clean Energy Fuels Corp (NASDAQ:CLNE)’s revenue, but only its capacity to build new stations and grab as much of the national market share as possible for when the market does mature. The company’s balance sheet looks pretty solid with over $130 million in cash and no long-term debt. While the company is making capital expenditures to build stations, it maintains a healthy financial position. So far, the company has 70 stations built with more on the way, and it is entering into strategic partnerships, like the one with Mansfield Oil. The agreement makes Clean Energy Fuels Corp (NASDAQ:CLNE) the natural gas provider for Mansfield’s customers who want to switch to natural gas.
Cannot have one without the other
Westport Innovations Inc. (USA) (NASDAQ:WPRT) and Cummins Inc. (NYSE:CMI) are the two engine companies that I look to for natural gas. Westport Innovations Inc. (USA) (NASDAQ:WPRT) is the completely focused upstart, and Cummins Inc. (NYSE:CMI) is the giant looking to stay ahead of the times rather than be swallowed by them. Both companies are in a joint venture together, but I like Cummins Inc. (NYSE:CMI) far better than Westport for various reasons. Normally, I would like the upstart, but Westport Innovations Inc. (USA) (NASDAQ:WPRT) has been too much start and not enough up. Profits are constantly around the corner yet elusive, and even though the market for natural gas engines is better than ever, the company is posting increasing losses.
In the last five years, Westport Innovations Inc. (USA) (NASDAQ:WPRT)’s net income has been going the wrong way. I really liked Westport once. However, Westport should be headed toward profits, not away from them. Natural gas has seen an increasing amount of interest in the last five years, and the price of the gas has declined. However minimal, I would be far happier for Westport to head into profits even if the slope just indicates a crawling pace of $1 million closer per quarter.
Cummins is a profitable company facing some revenue growth issues that have probably weighed on the stock. The one year return is only 11%, though the three year return is almost 60%. Three years ago was 2010, and the market was just coming out of the darkness of 2008 and 2009. The growth problems it has been facing is not surprising. The economic recovery has been uneven, but Cummins Inc. (NYSE:CMI) is still profitable, net income ttm is $1.5 billion. This presents one of those opportunities to play the short-term weakness against the long-term potential.
Cummins is innovating with its JV with Westport. They have an engine that is out in the world being used. Cummins also has its normal operations that are likely to recover as the economy improves. Any threat that natural gas posed to Cummins’ traditional business can be made up with its entry into natural gas. If push came to shove, Cummins could easily buy Westport Innovations Inc. (USA) (NASDAQ:WPRT) if it turns out that the engine has billions of dollars worth of potential. That is just to give you an idea of the scale of Cummins compared to its partner, not an attempt to be prescient. Right now, it seems more important to me that the engine is in operation and not the revenue from that business. During this ascension of the cleaner fuel, Cummins Inc. (NYSE:CMI) has its oil-based engines chugging along.
Conclusion
I would avoid Westport Innovations Inc. (USA) (NASDAQ:WPRT) until there is more positive news regarding the company exiting its loss-making growth phase. Cummins should be lower than it is. Considering the falling revenue and net income, and the general temperament of the market when it comes to results like that, Cummins Inc. (NYSE:CMI) has proven surprisingly resilient. I would expect the stock to knife down. I would not buy it here, but any significant decline is a buying opportunity into the future. Clean Energy Fuels Corp (NASDAQ:CLNE) has a solid entry point right now, though it’s not great. The company is not undervalued or overvalued. It is accurate to call it a speculative investment, so treat it as such.
The article Natural Gas Keeps Rolling Forward originally appeared on Fool.com and is written by Nihar Patel.
Nihar Patel has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels, Cummins, and Westport Innovations. The Motley Fool owns shares of Cummins and Westport Innovations. Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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