At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the worst...
It takes a special kind of cruelty to downgrade a stock in the middle of a widespread, panicked market sell-off. But it also takes courage of conviction, to look at a market where stocks are getting cheaper by the day, zero in on one stock that's already lost 27% of its value, and say: "Nope. I don't think it's bouncing back anytime soon." Yesterday, Northland Securities exhibited both talents, when it downgraded shares of Clean Energy Fuels (NAS: CLNE) to market perform.
Clean Energy has been capturing a lot of headlines lately, first when it reported earnings Monday, and despite growing revenue 57% year over year, managed to still miss Wall Street estimates for both sales and earnings. Second, when within hours of admitting the loss, Clean Energy CEO Andrew Littlefair went on CNBC's Mad Money to tell Jim Cramer how fabulously the company's going to do ... eventually.
In about a seven-minute talk, Littlefair described Chesapeake Energy's (NYS: CHK) $150 million investment in Clean Energy, aimed at accelerating construction of a refueling infrastructure for use by nat-gas-powered trucks. He boasted of his company's success in "dealing with" Coca-Cola (NYS: KO) and PepsiCo (NYS: PEP) , implying both companies are interested in deploying truck fleets powered by natural gas, and came right out and declared that Ryder (NYS: R) is planning to lease 200 natural gas trucks for its rental fleet. Deals are also apparently in the works to get Cummins (NYS: CMI) and Westport Innovations (NAS: WPRT) involved in building the natural gas engines to keep all these trucks moving from Clean Energy refueling station A to Clean Energy refueling station B.
Sounds pretty good
Yes, it does. And as Hannibal Smith might say, Clean Energy is going to love it when this plan comes together. Problem is, Northland doesn't seem to think the plans will turn into profits anytime soon -- and I'm afraid they're probably right about that.
Why do I say this? Well, first and foremost because of Northland's record. According to our CAPS stats, where we've been tracking Northland's performance since way back in 2007, this analyst is in fact right about the majority of the recommendations it makes. While Northland only outperforms the market on about 53% of its picks, its average margin of victory on the recommendations it makes (winners and losers combined) is close to 7 percentage points per pick. Northland has even been right about Clean Energy itself in the past. It's picked the stock twice already and outperformed the market by 162 percentage points combined for those two picks.
I think it's right about Clean Energy again today.
Clean Energy: Buy these numbers?
Consider: Clean Energy may be growing like wildfire, with revenue up 57%. But the name of the game in business isn't just amassing lots of revenue -- it's earning profit on that revenue. And lately, Clean Energy hasn't done too well at this latter task. Clean Energy hasn't booked a free-cash-flow-positive year since 2005 -- nor a GAAP-profitable year, either. From 2005 through 2010, the company racked up GAAP losses of $166 million, while burning $231 million in cash. More recently, the company has reported losses of $3 million under GAAP accounting standards over the past 12 months. Worse, the company burned through more than $50 million in negative free cash flow during the period.
Granted, most analysts expect 2012 to be the year that Clean Energy turns the corner, and reports a GAAP profit. Maybe it will, maybe it won't. (Northland appears to be in the "won't" camp, or at least to believe that whatever Clean Energy does earn won't be enough to justify the stock price.) As for me, I agree -- and I'd even go a step further and say that unless Clean Energy both earns a profit andstops burning cash, the stock remains too risky for your investment dollars.
The good news? In a market like this one, there are plenty of better places for your money. Click here and we'll give you a free report containing a few of the best ideas we've come up with.
At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 432 out of more than 180,000 members. The Motley Fool has adisclosure policy.The Motley Fool owns shares of Coca-Cola and PepsiCo.Motley Fool newsletter serviceshave recommended buying shares of PepsiCo, Coca-Cola, Chesapeake Energy, and Westport Innovations.Motley Fool newsletter serviceshave recommended creating a diagonal call position in PepsiCo. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.
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