Natural gas prices have been steadily rising over the past year. According to the U.S. Energy Information Administration (EIA) report, the increase in prices has been driven by relatively flat production of natural gas, rise in liquefied natural gas (LNG) exports, and an increase in natural gas consumption for different sectors in the U.S. other than electric power.
The EIA expects that the average share of electricity generation produced by natural gas in the U.S. will be 35% in 2021, and 34% next year.
Using the TipRanks stock comparison tool, let’s compare two natural gas companies, Clean Energy Fuels (CLNE), and NorthWest Natural Holding Company (NWN). I am neutral about both the stocks mentioned in this article.
Clean Energy Fuels Corp.
Clean Energy Fuels Corp. is a renewable energy company that procures and distributes renewable natural gas (RNG) and natural gas, in the form of compressed natural gas (CNG) and LNG, for use in the transportation sector in the United States and Canada.
The company generates revenues through the sale of RNG and conventional natural gas as a vehicle fuel, and the sale of environmental credits. Environmental credits are a way to monetize RNG if a company can prove that RNG is being used as a fuel for transport.
CLNE reported better-than-expected Q2 results on the back of resumption of operations at airports, and public transit customer markets.
CLNE posted revenues, on an adjusted basis, of $79 million, up 28.9% year-over-year, beating the Street’s estimate of $75 million. Adjusted earnings for the quarter stood at $0.01 per share. It compares favorably with a loss of $0.02 per share reported in the same quarter last year.
Andrew J. Littlefair, Clean Energy president and CEO, said, “In the second quarter we completed the most important commercial agreement in the history of our Company with Amazon (AMZN), our business has begun to return to pre-COVID-19 levels, we raised $200 million in growth capital, [and] our earnings were better than expected.”
In April this year, CLNE entered into an agreement with Amazon Logistics. Under the terms of the agreement, the company issued a warrant to AMZN to buy up to 53.14 million shares at an exercise price of $13.49 per share. The warrant shares will vest in multiple tranches based on the fuel purchases by Amazon. (See Clean Energy stock charts on TipRanks)
According to Needham analyst Vikram Bagri, AMZN has indicated that it plans “to deploy ~2.7K natural gas trucks by year end.” According to Bagri, “Each of these trucks may consume ~14-15MGals/y of natural gas, which provides another evidence of potential for strong growth in natural gas volumes tied to AMZN.”
The analyst reiterated a Buy rating, but lowered his price target from $12 to $11 (27.8% upside) on the stock following the Q2 results.
Clean Energy has also entered into a 50/50 joint venture (JV) with BP Products North America (BP) to develop, operate and own new anaerobic digester gas (ADG) RNG production facilities in the U.S.
Bagri indicated that “it appears first production from the JV will occur in 2023, later than our assumption of mid-22.”
Turning to the rest of the Street, Wall Street analysts are sidelined about Clean Energy Fuels, with a Hold consensus rating, based on one Buy and one Sell.
The average Clean Energy Fuels price target of $11 implies 27.8% upside potential from current levels.
NorthWest Natural Holding Co.
NorthWest Natural is headquartered in Portland, Oregon, and owns the NW Natural Water Company (NW Natural Water), NW Natural Gas Company (NW Natural), and other business interests.
According to NWN’s earnings release, the company is currently pursuing “RNG for the natural gas pipeline under the landmark Oregon Senate Bill 98, which supports renewable energy procurement and investment by natural gas utilities.”
The company has options to invest $38 million in four different RNG development projects that can access biogas derived from the treatment of water at Tyson Foods’ (TSN) processing plants. NWN is expected to begin construction of its first RNG facility with BioCarbN and Tyson Foods this month.
NW Natural Gas Company distributes natural gas to commercial, residential, and industrial customers in Oregon and southwest Washington.
In the second quarter, the company reported operating revenues of $148.92 million, up 10.3% year-over-year, and surpassing consensus estimates of $140.6 million. NorthWest Natural’s diluted loss narrowed to $0.02 per share from a loss of $0.17 per share from the same quarter last year. Analysts were expecting a loss of $0.13 per share.
Following the Q2 results, the company reaffirmed its FY21 outlook and expects earnings to range between $2.40 to $2.60 per share. This outlook assumes rising growth in customers, average weather conditions, and no significant changes in regulations. (See NorthWest Natural stock charts on TipRanks)
Maxim Group analyst Tate Sullivan maintained a Buy rating, and reiterated a price target of $74 (61.6% upside), on the stock following the Q2 results. The analyst expects earnings of $2.59 per share in 2022, “based on organic customer growth of 1.7%, and maintain our 2023 EPS estimate of $2.80, on organic customer growth of 1.7%.”
According to Sullivan, while NWN ended the second quarter with a debt-to-capital ratio of 57%, he expects that this ratio will decline to 54% in 2023. Debt-to-capital ratio measures a company’s financial solvency and is calculated by taking the company’s short-term and long-term debt and dividing it by the total capital.
Sullivan concluded, “We expect NWN will continue to increase its dividend – which is currently yielding 3.6%, acquire water companies, and grow organically based on more natural gas customers in Oregon and Washington.”
Turning to the rest of the Street, Wall Street analysts are sidelined about NorthWest Natural Holding Co., with a Hold consensus rating, based on one Buy, one Hold, and one Sell.
The average NWN price target of $57.33 implies 25.3% upside potential from current levels.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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