The stock is down 5.7% at $20.78 in early trade.
Even if the government raises subsidies to the natural-gas industry, shareholders in Clean Energy Fuels don't have much chance of hitting pay dirt. Industry tycoon T. Boone Pickens may get his payday, though.
T. BOONE PICKENS SAYS HE STARTED PROMOTING natural-gas- fueled vehicles back in 1988, hoping to boost the price of his company's natural gas. "I predicted I would do it within three years," says the 81-year-old tycoon. "Now it's 2010."
After 22 years, he thinks it's finally happening. A Pickens-controlled company, Clean Energy Fuels, sells natural gas to trucks and buses at yearly volumes equivalent to 120 million gallons of gasoline. Shares of Clean Energy (ticker: CLNE) have quadrupled within the past 12 months, to around 21. With America's natural gas currently cheaper than OPEC's diesel fuel, Pickens is optimistic that Congress will enact an energy bill that subsidizes the conversion of trucks to natural gas. He's lobbied politicians and the public with his "Pickens Plan" for oil independence: generate electricity with wind and solar power plants, fuel vehicles with the natural gas supplied by the likes of Clean Energy Fuels.
Wall Street has already voted for the Pickens Plan. Clean Energy's $1.3 billion stock-market capitalization values the yet unprofitable venture at 45 times the cash flow that analysts forecast for this year and 20 times the average forecast for 2011 -- about double the multiples of some rival companies. A jubilant end-zone dance like that seems premature. Natural gas clearly merits increased use as truck fuel, in place of the dirtier, more expensive, imported diesel. But after rising 50% since December, the stock price of Clean Energy more than discounts a potential boost in the generous government subsidies that have kept losses at the Seal Beach, Calif.-based enterprise from being even deeper than they are.
If large fleets of trucks eventually roll on natural gas, major oil and gas companies could step in without much trouble and compete away Clean Energy's gross margin -- which is five times the average for gasoline and diesel distributors. Shareholders can expect to get massively diluted, also. To build out its fueling infrastructure, Clean Energy has had a cash-sucking need for capital investment. Management awards itself piles of stock options. Warrants hanging over the company will dilute earnings almost 30%, including a wad that Pickens must exercise before 2012 or lose a profit of $150 million. He can use the money: Most of his shares are pledged to a bank. Clean Energy investors should brace for that 30% haircut.
IN 1996, PICKENS RETIRED FROM his independent energy company, Mesa Petroleum, and from a swashbuckling career as a corporate raider. Since then, he's managed money with uneven results -- and been a generous donor to hospitals, universities and Republican candidates.
He also paid Mesa $1.3 million in 1997 for two natural-gas fueling stations at the airports in Los Angeles and Phoenix. Those stations were the start of Clean Energy Fuels, which now counts more than 200 locations in 23 states. Another 50 stations are in the works, says Andrew Littlefair, who is the company's chief executive and a Pickens colleague since the days at Mesa.
Cities from Los Angeles to Atlantic City are deploying natural- gas-fueled trucks and buses. Commercial trucking fleets are testing the fuel at companies like UPS, Wal-Mart and AT&T. Those are good-sized markets. Municipalities use more than five billion gallons of diesel and gasoline a year to run heavy vehicles, while regional trucking fleets use an estimated 30 billion.
"People are finally figuring out that this thing can and will work," says Littlefair. "The story's not that complicated. It's a low-carbon fuel that's cheaper and works pretty well for the right vehicles."
For many frustrating years, Pickens argued that the right vehicles included cars. Among the 11 million vehicles now running on natural gas worldwide, there are over 60 models of car. Fiat sold more than 140,000 natural-gas-powered cars last year in Italy. But in the U.S., a paltry total of 130,000 vehicles use the fuel, few of them cars. Honda markets the only natural-gas car, the Civic GX, in California and New York.
Gasoline was always cheaper in the U.S. than in Europe. And now, America seems to have picked batteries to replace the gasoline in cars. Natural gas may help generate some of the electricity that powers plug-in electric cars, but the gas will get burned at power stations and the energy distributed through electric wires rather than fueling stations like Clean Energy's.
But 18-wheeler trucks can't run on today's batteries. Vehicles in the heavyweight classes known as Class 5 to Class 8 can carry the large fuel tanks required to cover meaningful miles on compressed natural gas (squeezed at 3,600 pounds per square inch) or liquid natural gas (cooled to minus 160 Celsius). So Pickens and Clean Energy have refined their sales pitch to target the 18-wheelers....
...The Bottom Line
The stock has risen by more than 50% since December, more than pricing in the business' prospects. With dilution looming, the stock is likely to drop at least 30%....MUCH MORE
A Bullish Bet on Clean Energy Fuels: Is Nancy Pelosi a Better Derivatives Trader than Hillary Clinton? (CLNE)
If you recall, the Secretary of State ran a grand to $100,000 in a ten month period, October 1978 to July 1979. Newsweek had the best quote: "This is like buying ice skates one day and entering the Olympics a day later," 'says Mark Powers, editor of the Journal of Futures Markets. "She took some extraordinary risks."
The Speaker on the other hand bought her stake in CLNE on the IPO at $12.00, in May 2007.
The stock traded up twenty cents yesterday but was recently at $11.96, down twelve cents on the day and four pennies below the IPO price.
Oh well, maybe this is her trade...