June 23, 2008 - We think Clean Energy Fuels (formerly Pickens Fuel – yes, of the Boone Pickens notoriety) is getting more
attractive at current levels given our longer-term outlook for the natural gas driven auto market . We would be buyers of the
stock anywhere under $9.20, all things being equal . The stock has suffered recently due to relatively poor performance in
the first quarter where volume was down due to delays in a few key projects. In addition, the company was challenged by
negative variance in margins on fixed price sales contracts due to increases in natural gas prices. The company has guided
that margin pressure as a result of rising natural gas prices will likely have adverse consequences for financial performance in
the second quarter as well. We see these dynamics likely to create further softness in the stock price that will be a great
opportunity to accumulate in the next quarter or so.
Recent Financial Results
· Revenues up nominally for the Q1 to $29.9 million from $28.2 million, or 6% on a Y/Y basis;
· Net loss for the Q was $5.4 million, or $(0.12) per share compared to a net loss of $0.9 million, or $(0.03) last year;
In addition to the margin issues discussed above, financial results were also negatively impacted by several one-time issues,
including $2.5 million in stock-based compensation expenses, higher than usual marketing expenses of $1.3 million related
to supporting the California bond initiative, and an increase in salaries due in large part to increasing manpower.
The positive news is that management has indicated that the company’s largest fixed price contracts will be expiring at the
end of June. So the drag on margins that is being caused by a long-term contract being fulfilled at a loss will be off the books.
So what will drive the stock going forward? Several things.
Manufacturers anxious to bring larger volumes of fuel cell vehicles to the markets are going to need the infrastructure in
place to support it, and Clean Energy appears to be extremely well positioned on this front.
· Announced June 12 that it is opening a hydrogen fueling station in Los Angeles with support from General Motors Corp.
(NYSE:GM). It will be used by drivers taking part in Chevrolet’s Project Driveway (the largest market test of fuel-cell
vehicles). GM and CLNE are discussing further opportunities to expand into a network of hydrogen fueling stations.
In terms of competing at the pump with oil, CLNE is also well positioned. For example, at recent prices in Los Angeles for
diesel at $4.60 per gallon, CLEN is selling natural gas to its fleet operators at about $3.00 per gallon.