New Trade for August 11th, 2021

Stocks jumped this morning after key inflation data showed better than expected results.  July’s Consumer Price Index, released this morning, rose 0.3% last month, below the 0.4% that was expected.  

Meanwhile, on Capitol Hill, Democrats took the first step towards passing a $3.5 trillion budget plan.  The Senate-approved budget resolution was passed with a 50-49 vote along party lines.  The measure would include spending on climate initiatives and comes just one day after the Senate passed a $1 trillion bipartisan infrastructure bill.  

Today’s stock pick highlights a well-aligned company to benefit from the fresh spending and the Biden administration’s plan to reduce carbon emissions in the U.S. by 50% over the next decade.

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According to the California Air Resource Board, every 100,000 gallons of renewable natural gas supplied equates to removing 1,025 cars from the road.  Clean Energy Fuels (CLNE) is the leading provider of natural gas for transportation in the U.S., operating more than 565 stations across the country.  The company serves to reduce carbon emissions through the use of methane, a by-product of the breakdown from organic matter at waste treatment plants, landfills, and farms.    

As the nation’s top producer of renewable natural gas, CLNE is well aligned to benefit from the Biden administration’s plan to reduce carbon emissions in the U.S. by 50% over the next decade.  Clean Energy delivers around 360 million gallons of RNG (renewable natural gas) each year, which is a pretty good chunk of the country’s total annual production capacity of 500 million gallons. 

The company recently signed a five-year agreement with Amazon (AMZN) to provide renewable natural gas at 27 existing fuel stations and another 19 that are still being built.  An agreement that could supply hundreds of millions of gallons of renewable natural gas alone.  But that’s not all.  The e-commerce giant also plans to take up to a 20% stake in Clean Energy over the next ten years.    

Earlier this month, the company reported that RNG delivery was up 19% in the second quarter compared to the second quarter last year, and company execs say this is just the beginning.  Clean Energy’s President and Chief Executive Officer, stated “In the second quarter we completed the most important commercial agreement in the history of our Company with Amazon, our business has begun to return to pre-COVID-19 levels, we raised $200 million in growth capital, our earnings were better than expected, and there continues to be an increasing understanding of the role our renewable fuel can play today in addressing climate change. We’re also executing on our plans to develop low CI renewable natural gas and to provide renewable natural gas from additional sources to our nationwide fueling network.”

Revenue for the second quarter of 2021 increased by 28.9% to $79.0 million compared to $61.3 million for the second quarter of 2020.  This increase in revenue was principally due to higher effective fuel prices resulting from higher natural gas prices, a favorable fuel price mix based on the variation of fuel types and locations where fuel is delivered, and an increase in the number of gallons delivered.  Station construction revenue was $6.1 million for the second quarter of 2021 compared to $5.3 million for the second quarter of 2020.

CLNE’s share price is down 37% over the past two months, lagging the Utilities sector’s loss of 4% and the S&P 500’s gain of 5%.  However, the tide seems to be shifting, and the analysts covering the stock mostly agree that there is plenty of upside on the horizon.  A median price target of $15.50 implies a 90% upside over the next 12 months.  Of 7 analysts offering recommendations for CLNE stock 4 rate the stock a Buy, 1 rate it a Hold, and 2 rate it a Sell.