(Clean Energy Fuels, Westport Innovations story updated for sector earnings reports)
NEW YORK (
) -- Natural gas vehicle plays
Clean Energy Fuels
traded down earlier this week as the outlook for quick action on energy legislation from Capitol Hill dimmed. The markets roared up on Monday, oil was above $80 for the first time since May, and the natural gas vehicle stocks trended down.
On Tuesday, the major market indexes were down to a marginal extent, but the natural gas vehicle plays continued to suffer bigger losses.
Westport Innovations is continuing down on Thursday, announcing a slight revenue miss in the quarter, and in line earnings.
Clean Energy doesn't report until next Monday, but its shares are down roughly $2 this week. Westport had matched that $2 loss before its Wednesday after-hours earnings report, which sent its shares down a little more.
>>Natural Gas Vehicle Stocks to Watch: Earning Outlook
It's nothing new or surprising for these natural gas vehicle stocks, just the typical momentum swings triggered by the outlook for energy legislation in Washington D.C.
The outlook for energy legislation took a turn for the less confident late last Friday, when the House voted to approve, but political division was evident, and the Senate seemed poised for inaction on its sister legislation.
By Tuesday, Senate Majority Leader Harry Reid (D. Nev.) announced that energy legislation -- whether in the form of comprehensive legislation or an oil spill bill -- would be put off until at least September.
A few weeks back, Senate Majority Leader Reid made the decision to push stripped-down energy legislation focused on the Gulf of Mexico oil spill, the natural gas vehicle stocks received one of many recent lifts. A provision included in the narrow energy bill is the federal incentive making the purchase of natural gas vehicles comparable to the purchase of conventional vehicles. The provision is the most important short-term catalyst for the natural has vehicle stocks like Clean Energy and Westport Innovations.
Westport, in fact, reached a 52-week high last week at $21.34.
On Tuesday afternoon, Clean Energy Fuels was down another 4.5% and Westport Innovaations shares were declining 3.5%. The slump in the natural gas vehicle stocks for the second consecutive day was pared back at midday Tuesday, but became more pronounced in the afternoon as news broke from Capitol Hill about the Senate punt on energy legislation.
Now the question is what to do with the natural gas vehicle stocks like Clean Energy Fuels and Westport Innovations. Are the stocks range-bound and dependent on the whims of the Senate? Has the tailwind of the legislative spurt been replaced by the headwind of upcoming earnings for companies like Clean Energy Fuels?
It partially depends on the type of investor. For a long-term investor like a
, or Lord, Abbett & Co., the fundamental reasons for investing in this sector have not changed, and were not predicated on a specific time line for the federal incentive. Long-term investment in the natural gas vehicle stocks is predicated on federal support for natural gas vehicle purchases, but the timing is not a critical issue.
The timing of the federal natural gas legislation is, however, critical for the momentum investors who have been playing these stocks on every legislatively linked headline for months. Shawn Severson, an analyst at ThinkEquity, noted that the belief that at some point there will be federal legislation to support the natural gas vehicle market has already been priced into the numbers. Severson said that the recent short-term, headline-driven trading in these stocks has made good money for traders, and retail investors have piled in, too. "People keep doing it again and again, and again," the ThinkEquity analyst said.
However, now most analysts are of the opinion that there are less positive catalysts for the natural gas vehicle stocks than negative catalysts in the immediate future, short of the legislation. Clean Energy Fuels has its earnings coming up on August 9, and even though it could print an earnings beat number based on the quarter-to-quarter change in the value of convertible securities, volume growth has not been good for some time, and may not pick up significantly until the legislation is enacted.
Additionally, Clean Energy filed a shelf registration last Friday with the Securities and Exchange Commission to issue shares. It's no surprise to the Street that Clean Energy will be looking to raise cash through the issuance of shares, and many analysts think Clean Energy was hoping to dovetail with a positive outcome on Capitol Hill.
Analysts say Clean Energy is going to have to issue shares before the end of the year regardless of the short-term fate of the oil spill energy bill.
Brian Gamble, analyst at energy specialist Simmons & Co., said the company needs to fund capital expenditures to keep building its natural gas fueling stations, as well as keep up with its ongoing SG&A expenses, and pay for an acquisition made in the quarter.
"The legislation, if passed, would help, but energy bill or no energy bill, they need some money," Gamble said, adding that as much as $150 million is not unreasonable as an equity raise for Clean Energy Fuels. "You have to be ready for the swings one way or the other. These are headline stocks with retail guys involved," the Simmons & Co. analyst said, adding that Clean Energy Fuels now has the potential headwinds tripled -- its earnings, the legislative stall, and an equity raise on the horizon.
Even though the House was able to pass the measure, it only received enough votes because of the absence of both Republicans and Democrats. A big part of the divide in the energy bill is over the unlimited liability cap for oil spills. The push by Reid for a narrow bill was seen as a positive for natural gas vehicle stocks, as a big fight over the most contentious energy issues, like carbon can and trade, was seen as likely to doom any bill. However, the paring the energy bill back to the oil spill essentials has presented its own set of problems related to the oil lobby and oil state Democrats.
FBR Capital Markets analyst Benjamin Salisbury predicted the Senate punt and summed up the pyrrhic victory of the House vote on energy, writing on Monday morning, "The bill appears to have stalled in the Senate, meaning that final passage is unlikely until fall at the earliest.... Our contacts in the Senate suggest that Majority Leader Harry Reid does not have the 60 votes needed to pass his oil spill bill before Congress leaves for the August recess. Assuming that a broad compromise does not emerge by then, we expect the Senate bill to be set aside until after the September recess and the Senate to turn to the debate on Supreme Court nominee Elena Kagan."
Clean Energy Fuels has been among the natural gas vehicle industry leaders in the lobbying for an energy bill. Companies in the sector have been speaking as if passage of the bill with the natural gas provision was likely ever since Reid highlighted the narrow energy bill on the Senate agenda. In its recent conference call, Italian natural gas vehicles company
spoke in terms as if the legislation was assured of passage, in the interpretation of one analyst on the call. Landi Renzo made an acquisition last week of a natural gas conversion company -- a privately held competitor to Clean Energy Fuels' conversion subsidiary -- as a way to gain a foothold in the U.S. market.
"Last week, people were guessing that the bill would go through and the elimination of cap and trade would help, but the vote didn't go the way the natural gas vehicle companies wanted it to go," said one clean technology analyst, who is in between coverage on names and could not be directly quoted. "I still think the momentum is strong enough to pass something, but it will be a lame duck," the analyst added.
The longer the legislative uncertainty drags on, the more the cleantech analyst group feels like a lame duck is the logical conclusion of this Harry Reid attempt. "It's anyone's guess, but I don't have high confidence," said Simmons and Co. analyst Gamble.
"There doesn't seem to be enough political support on either side of the aisle for the stripped down bill," said analyst Carter Driscoll of Capstone Investments. Driscoll said that he believes there will be energy legislation between the mid-term elections and presidential election, but that's about as far as he is willing to go in making a call. It might be a longer road than thought just a few weeks back when Harry Reid was pushing ahead, but it would favor bipartisan issues like the natural gas vehicle subsidy finally finding its road to legislative passage.
The passage of the natural gas subsidy is the push the nascent sector needs to get over the proverbial hump and change what has been a slow, short-term order growth story. Without it, the natural gas vehicle stocks may not have much upside for the next few quarters, unless, of course, the legislative outlook changes yet again.
Traders, if no one else, are probably ready for that.
-- Written by Eric Rosenbaum from New York.
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