NEW YORK (

TheStreet

) -- Natural gas vehicle stock plays like

Clean Energy Fuels

TST Recommends

(CLNE) - Get Report

,

Fuel Systems Solutions

(FSYS)

and

Westport Innovations

( LR) are getting a lot of play as energy politics takes up the issue of federal support for natural gas vehicles.

Or at least, the power brokers in Washington D.C. seemed to be taking up the issue of supporting the growth of natural gas vehicle fleets until last Friday. Senate Majority Leader Harry Reid (D-Nev.) had introduced quick-hit energy legislation, dubbed the oil-spill bill. It included a federal incentive to make the cost of natural gas fleet vehicles, like trucks and vans, comparable to convention vehicles, but it died almost as quickly as it was introduced, with Reid delaying the legislation until at least September. It was a short-term blow to companies like Clean Energy Fuels that had been championing the energy bill cause.

Natural gas vehicle companies, especially Clean Energy Fuels, were doing everything they could to keep the energy bill ball moving. Clean Energy Fuels had issued a press release when Reid introduced the oil spill bill lauding the decision. The natural gas non-profit lobby group, the

American Clean Skies Foundation

, for which Clean Energy CEO Andrew Littlefair serves as a director, took out a full page ad in the most recent issue of

The New Yorker

to press the issue.

Landi Renzo

( LR), the Italian natural gas vehicle market leader that set up shop in the U.S. this year, was speaking as if the energy bill had already passed on its recent earnings conference call.

It was all for naught, at least until September. Some political analysts think the September scenario is a rosy one, anyway, and that any energy bill before the mid-term elections will be a lame duck piece of legislation. In the end, the rush of excitement about the energy legislation, and the trading linked to it, was a D.C. downer for Clean Energy and its peer companies.

Clean Energy Fuels Outlook

Click Here for Clean Energy Fuels Outlook

One long-time buy side investor in the natural gas vehicle space summed up the back-and-forth of the political process by saying, "Right now, there is a lot of concern about the elections, and very little clarity on whether an energy bill gets passed. I think it will eventually get passed, but when? Who knows?"

Dr. John Roy, an independent expert on the natural gas vehicle space, said he still thinks there is enough momentum for legislation to eventually pass, but the stocks may trade sideways or down during the rest of the summer as nothing happens in Washington.

Westport Innovations Outlook

Click Here for the Westport Innovations Outlook

The political stall puts the focus squarely back on earnings season. Short of legislation to spur the sales of natural gas vehicles, are these stocks likely to shift down a gear? A short-term catalyst for these stocks is the issue, and short interest remains elevated in these names. Take Fuel Systems Solutions, as an example, with 55% short interest as a percentage of the company's float.

Fuel Systems Solutions Outlook

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A problem inherent in the political uncertainty for the natural gas vehicle stocks is a wait-and-see attitude from potential purchasers of natural gas vehicle fleets, like trucking and shipping companies. The argument runs that since everyone knows the federal support for natural gas vehicles will be coming at some point, potential buyers of natural gas trucks and vans will wait to make their purchases. Additionally, the natural gas vehicle stocks, particularly Clean Energy Fuels and Westport, that are dependent on the U.S. market growth, have traded with political volatility this year, as opposed to trading on fundamentals.

In light of the lack of political clarity, though, the focus turns to earnings season, already underway for the natural gas vehicle stocks. Clean Energy Fuels, which reports Aug. 9, has been the most closely linked to the energy bill, and its short-term outlook could have used the big push of the energy bill. Westport Innovations reported on Wednesday after the market close, and Fuel Systems Solutions reported on Thursday morning.

The following is a look ahead to the Clean Energy Fuels earnings next week, and a review of the breaking earning news this week in the natural gas vehicle sector.

CLEAN ENERGY FUELS

(CLNE) - Get Report

: Being the poster-child for the political effort to pass a natural gas vehicle provision --

T. Boone Pickens

serves on the Clean Energy Board -- has resulted in a lot of play for Clean Energy shares, but earnings expectations are for limited momentum without the push from federal legislation. Likewise, the earnings catalysts are more likely to occur in 2011, as opposed to the latter half of this year.

Consensus EPS Estimate:

2 cents earnings per share

Range of EPS Estimates:

loss of 9 cents to gain of 16 cents

First Quarter 2010 EPS:

loss of 11 cents

Consensus Revenue:

$43.4 million

50-Day Moving Average:

$16.31

Share Price Gain or Loss on Day of Last Earnings:

$2.09 (loss)

Lowest Share Price Since Last Earnings:

$13.48(May 25)

Highest Share Price Since Last Earnings:

$19.36 (July 29)

Short Interest as % of Float:

20.6%, or 8.23 million shares (as of July 15)

Key Issues:

It's a matter of underlying, long-term trends versus any push received if and when the federal energy legislation is passed. Activity outside the U.S. is helping some companies, like Fuel Systems and Westport, but Clean Energy Fuels doesn't have the international buffer.

With the sector lacking a strong catalyst for the next couple of months, at least, it's behind the scenes action that will drive future earnings momentum. Customers are testing natural gas vehicle equipment in anticipation of placing orders after any favorable legislation is passed. In a name like Clean Energy Fuels, though, investors may have to wait until next year to see real numbers come through, in the opinion of ThinkEquity analyst Shawn Severson.

Some analysts, like Rob Brown, of Craig-Hallum, think Clean Energy Fuels is sitting squarely in front of a mega-trend. Other analysts worry that the mega-trend will be matched by a sudden rush by the integrated oil giants into Clean Energy's core business of natural gas refueling stations.

Clean Energy's natural gas conversion business, BAF, just received some new competition, when Italian natural gas vehicle company

Landi Renzo

( LR) announced that it had acquired a privately held company in the U.S.,

Baytech

, that has the same CARB certification as the BAF business.

The CARB certification, available only from BAF and Landi Renzo, allows the companies to offer the natural gas conversion kits in any U.S. state without a lengthy certification process.

FUEL SYSTEMS SOLUTIONS

(FSYS)

is the clear earnings winner in the group, with its shares up 17% on Thursday based on the strength of its pre-market earnings.

Consensus EPS Estimate:

22 cents earnings per share

Actual EPS:

39 cents a share

Range of EPS Estimates:

13 cents to 36 cents

First Quarter 2010 EPS:

$1.59 earnings per share (huge outperformance of Street consensus of 90 cents)

Consensus Revenue:

$89.5 million

Actual Revenue:

$99.8 million

50-Day Moving Average:

$27.57

Share Price Gain or Loss on August 5 Earnings:

$4 (gain, in early trading)

Lowest Share Price Since Last Earnings:

$24.50 (July 7)

Highest Share Price Since Last Earnings:

$33.67 (Today, Thursday, August 5)

Short Interest as % of Float:

59.5%, or 7.3 million shares (as of July 15)

Key Issues:

It's not just short covering driving shares of Fuel Systems Solutions higher on Thursday, though given its hefty short interest as a percentage of its float, there is no doubt short covering taking place as the company outperformed earnings expectations.

The natural gas vehicle European market leader raised the low-end of its revenue expectation to $425 million, up from $400 million, though the high-end was unchanged at $450 million.

It was the industrial segment that drove the big earnings beat -- the second consecutive earnings beat from Fuel Systems, with the industrial business earnings tripling to $29.4 million.

The strong numbers posted by the Fuel Systems industrial business was not a complete surprise, though they did exceed expectations. The industrial segment revenue had recovered in the previous quarter, when it posted sales of $24 million, up over 30%. Analysts expected the sales into the industrial sector to continue to gain momentum throughout 2010.

After the first quarter blowout from Fuel Systems, analysts were still unconvinced about the short-term catalysts after the Italian market eliminated the government incentives for natural gas vehicles. The key issues are arguably unchanged on Thursday, after another big earnings beat.

Will Fuel Systems be able to successfully penetrate the fleet vehicle market inthe U.S.?

What will the European OEM market margin profile look like without the Italian government incentives?

Gross profit for the second quarter reported on Thursday was $25.7 million, or 25.8% of revenue, compared to $28.6 million, or 31% of revenue a year ago, and reflected the reduction in OEM volumes versus last year, partially offset by improved margins in the industrial business.

Shawn Severson, analyst at ThinkEquity, said of the big beat, "This was clearly not the quarter or guidance the shorts were hoping for. The transportation sector was weak as we had expected, but the industrial business posted impressive results and operating margin gains.... We had anticipated a nice recovery in that segment, but that is likely where the biggest surprise relative to expectations came from."

Westport Innovations reported after the market close on Wednesday, and the results weren't the type that can move the needle for a stock in this volatile natural gas vehicle sector. Westport shares recently slipped from a recent 52-week high with the energy bill political fallout, and its shares were flat on Thursday as a result of a minor revenue shortfall and an in line earnings per share number.

Consensus EPS Estimate:

21 cent loss per share

Actual EPS:

21 cent loss

Range of EPS Estimates:

15 cent loss to 25 cent loss

First Quarter 2010 EPS:

32 cent loss earnings per share (underperformed Street consensus of 16 cent loss)

Consensus Revenue:

$32 million

Actual Revenue:

$25.5 million

50-Day Moving Average:

$17.87

Share Price Gain or Loss on Day of Last Earnings:

$2.20 (gain)

Lowest Share Price Since Last Earnings:

$14.94 (July 1)

Highest Share Price Since Last Earnings:

$21.34 (July 27, when Senate introduced oil spill bill)

Short Interest as % of Float:

4.8%

Key Issues:

The results from Westport were near expectations, and the revenue miss was attributed to a delay in shipping some product that will show up in the next two quarters, so it won't impact the full year revenue picture.

The Westport earnings didn't provide much incremental information, and the Street maintains its position that the recent trading on the political hopes has to be separated from the multi-year time horizon.

There is a reason why Westport has the least short interest of the three leading natural gas vehicle plays in the U.S. When the energy legislation passes is less important to the bullish Westport view than the conviction that earnings momentum will be generated in the second half of 2011 and 2012. Therefore, if Westport shares continue to slip after having reached a 52-week high in late July, bullish investors may want to add to long-term positions.

Westport has a comprehensive platform for heavy duty, medium and light duty vehicles: Westport HD (heavy duty), Cummins Westport (medium) Juniper Engines (light duty). Westport has also been able to make some strides outside the U.S. with business gains in Australia, and the finalization of a Chinese joint venture, Weichai Westport, during the quarter.

Revenue was light with the shipping delay, and that provided evidence of the short term headwind from uncertainty on the legislative front, with customers delaying orders on the hope that legislation will provide natural gas vehicle purchase incentives.

-- Written by Eric Rosenbaum from New York.

RELATED STORIES:

>>Green Stock Losers: Westport, Clean Energy

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>>Green Stock Winners: Westport, Clean Energy

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