Westport Comes Up Short

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This was not the quarterly report Westport Innovations (NAS: WPRT) shareholders were hoping for. Not after the stock had lost nearly 50% of its value in less than two months. Concerns that joint venture partner Cummins (NYS: CMI) was developing its own natural gas engine to compete with Westport products were largely responsible for the recent drop.

While an earnings beat could have helped turn things around, the natural-gas engine maker again missed Wall Street expectations for the fifth quarter in a row, posting a $0.44 per-share loss when analysts were looking for a $0.33 loss.

Revenue grew 133% to $88.6 million, just short of estimates, but investors punished the stock for the earnings miss, sending it down 4% in after-hours trading.


Growth was strong across all segments with light duty leading the way at 258% with help from acquisitions over the past year. Delivery of Westport's WiNG Power System for Ford (NYS: F) F-250 and F-350 pickup trucks is expected to begin in the second quarter, which could be a promising revenue as management said fuel savings should be upward of $2 per gallon.

Westport's joint venture with Cummins once again brought in the majority of revenue at $52.7 million, growing 110% from a year ago, and the two companies extended their partnership for 10 years. CEO David Demers specifically addressed Cummins' decision to build a spark-ignited 15-liter engine, saying, "We wish them well. We simply believe that we have better returns available to us elsewhere." Others have pointed out that the spark-ignited engine does not provide the same torque that Westport's high-pressure direct-injection engines do, so it seems the two will not be directly competing.

Westport also experienced revenue gains of 65% in its heavy-duty division and 49% in its joint venture with Weichai in China.

While the 4% drop might sting, for most investors this company represents a long-term play on the gas boom and the expected transition to natural gas fuel, so it's easy to overlook an earnings miss. Shares of Clean Energy Fuels (NAS: CLNE) , builder of natural gas fuel stations and "America's Natural Gas Highway," took a 7% dip Tuesday after its earnings report disappointed. Demers mentioned Clean Energy on the call, saying the two companies have been working together and calling the fuel transition a "chicken and egg problem," adding that fleets are waiting for the fueling infrastructure to take shape before they adopt natural gas engines. Westport has launched its own fueling solution, known as Jumpstart, which provides portable LNG trailers for Westport HD customers.

For both of these stocks, it seems like the upside potential is limited until serious momentum picks up to make the natural gas switch. At the very least, Westport needs to start meeting or beating earnings expectations and making steps toward profitability if the stock is going to appreciate significantly.

While this company continues to look promising as a long-term investment, analysts are predicting losses through 2013. Westport has projected revenue of $400 million-$425 million for 2012, about 50% growth over the previous year, and analysts see a 33% increase in 2013.

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At the time this article was published  Fool contributorJeremy Bowmanholds positions in the companies above. The Motley Fool owns shares of Ford Motor and Westport Innovations. Motley Fool newsletter services have recommended buying shares of Westport Innovations, Cummins, Ford Motor, and Clean Energy Fuels. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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