Clean Energy Fuels May Not Benefit Much More From the Amazon Deal

Daily Trade

Clean Energy Fuels (NASDAQ:CLNE) stock has a long and not all that successful history.

Image of a Metro Local public transportation bus on Hollywood Blvd.

Source: ZikG / Shutterstock.com

Famed energy investor Boone Pickens launched the company way back in 1997 as Pickens Fuel.

It rebranded in 2001 to its current name, Clean Energy Fuels and it trades as CLNE stock on the Nasdaq.

Pickens passed away in 2019. However, Clean Energy Fuels lives on as part of Pickens’ mission.

Pickens ran a prominent energy hedge fund and was worth at least $500 million at one point. He long advocated a multi-pronged plan to get America to a sustainable energy future.

The plan involved nuclear power and wind energy for electricity generation, and using natural gas as the transportation fuel. This combination of energy sources, Pickens said, would allow America to have a robust domestically-sourced and low-carbon energy line-up.

While Pickens didn’t get all of his ideas to become consensus, he certainly had an influence on the energy policy debate, and his Clean Energy Fuels company continues to try to popularize natural gas as an alternative to petroleum.

Some skeptics might argue that natural gas is not needed given that everything is seemingly going electric. However, there appear to be supply bottlenecks around lithium, copper, cobalt, and other key inputs for batteries.

Society may well need a bridge fuel for transportation while getting the electric grid and charging infrastructure up to speed. In natural gas, there is seemingly a cheap, widely-available and much greener alternative to petroleum or diesel.

So why hasn’t CLNE stock performed better over the years?

A Closer Look at CLNE Stock

Right now, Clean Energy Fuels operates more than 500 natural gas fueling stations around the United States.

In theory, natural gas was supposed to become a mainstream option. If it had taken off, this could have become a massive business. However, some safety concerns hampered progress.

Additionally, the price of both crude oil and gasoline plunged from 2014 onward, and that reduced incentives to switch from gasoline to natural gas.

So, given those limitations, the natural gas vehicle market nowadays is primarily for large units that operate fixed routes.

Think of things such as waste collection vehicles or public transportation buses. Given the large amount of consumption in these sorts of vehicles, even modest cost and emission savings add up quickly.

Unfortunately for Clean Energy fuels, this sort of niche has not led to a large business. The company’s annual revenues topped out at $429 million in 2014.

It since fell to around $350 million per year in the late 2010s, and under $300 million last year with the pandemic hitting demand.

This isn’t high profit margin revenue either. Selling natural gas, like selling gasoline, is a fairly commoditized business where the fuel vendor only gets to charge a small mark-up.

As a result of its low margins and flatlined revenue, Clean Energy Fuels has only generated positive net income one year out of the past decade. That’s hardly inspiring.

The Amazon Deal

For most of the past five years, CLNE stock has traded between $2 and $4 per share. Furthermore, it attracted little trader interest either.

Shares started to wake up last fall, and really took off in January. That is, of course, when the meme stock phenomenon got going. Clean Fuels has a large short position, and thus made sense as a short squeeze target.

That alone probably wouldn’t have kept the stock near the double digits, however. No, what really changed things was the Amazon (NASDAQ:AMZN) partnership.

In April, Clean Energy Fuels announced that it will be supplyinng large quantities of renewable natural gas (RNG) to Amazon. We’re talking hundreds of millions of dollars of it, in fact.

Amazon will be buying RNG from 46 Clean Fuels stations in 15 different states. In return for the huge order, Amazon gets a stake in Clean Fuels.

If it buys $500 million or more of RNG from Clean Fuels, it will get warrants to acquire 20% of the company.

At the set warrant exercise price, this would bring in more than $700 million of cash to Clean Energy Fuels in return for selling off 20% of the company.

That’s not terrible as far as dilution goes. Still, it may set a concerning precedent wherein large customers want a sweetener, like Amazon got, in return for doing business with Clean Energy Fuels.

CLNE Stock Verdict

Clean Energy Fuels has a long track record as a public company, and unfortunately it’s not a good one. Historically, it’s been a smart move to sell CLNE stock on any meaningful rally.

While Clean Energy Fuels announces a lot of partnerships and new business ventures, rarely does it move the needle for the firm.

That said, this is Amazon we’re talking about here as a customer. If there was anything that could finally get Clean Energy Fuels back on track, this might be it. So I get why social media traders continue to be excited about Clean Fuels.

If Amazon kicks off a series of big contract wins for the company, that could finally get the business turned around. It’s still a risky bet at this point, however.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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