Clean Energy Fuels: Amazon Deal Lacks Substance, Says Raymond James

Hype is often an element that fuels strong share appreciation. And talking of the dual combination of fuel and hype, Raymond James analyst Pavel Molchanov thinks the latest developments at Clean Energy Fuels (CLNE) are not much more than that.

“The news that Clean Energy will supply fuel to a modest number of Amazon trucks is the latest instance of sentiment-driven multiple expansion with minimal read-through for profitability,” the 5-star analyst said. “Alongside similar recent news involving BP and Total, the common theme is that the stock is carried away by headlines over substance.”

Molchanov’s comments came after the company announced that, on a non-exclusive basis, it will supply Amazon with low- and negative-carbon renewable natural gas (RNG), from 46 of its fueling stations. These consist of 27 existing and 19 new locations, equating to 8% out of Clean Energy’s 565 stations.

The analyst notes that the supply deal is not out of the ordinary except for the fact Amazon will receive a warrant to purchase 53 million CLNE shares for $13.49.

“This equates to 27% of current shares outstanding, implying hefty dilution, even if only some of the tranches end up being exercised,” Molchanov said.

Taking a look at the bigger picture, the total number of natural gas vehicles in the U.S is 300,000, and, as such, Amazon’s 700 CNG (compressed natural gas) trucks are “not needle-moving.” In contrast, Amazon has put in an order for 100,000 electric delivery vans from Rivian by 2024. Now that is more of a needle mover, says Molchanov and “just one case study of how fleets are electrifying at a much faster place than passenger/light-duty vehicles.”

Almost 10% of the US’ transit bus newbuilds are by now electric with both medium-duty and heavy-duty trucks next in line.

What’s more, the low carbon fuel standard is set to become “meaningless.” Molchanov cites California, where zero-emission mandates for transit buses will come into play eventually, as an example of this rationale.

Furthermore, Biden’s infrastructure plan has grants for electric-powered buses to replace virtually all diesel transit buses and 20% of school buses. 

“To underscore,” Molchanov summed up, “Transit buses along with refuse trucks are Clean Energy’s key end markets.”

Accordingly, with fleet electrification a “massive competitive threat,” Molchanov rates CLNE an Underperform (i.e. Sell) without suggesting a price target. (To watch Molchanov’s track record, click here)

Based on the word of the Street, Molchanov seems to be the sole bear running loose here. The 4 other recent CLNE reviews split into 3 Buys and 1 Hold, making the analyst consensus on this stock a Moderate Buy. Moreover, the average price target remains a bullish one; at $21.5, the forecast is for 12-month gains of 107%. (See CLNE stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.