Lake Street Capital Markets' analyst Robert Brown (formerly with Craig-Hallum) initiated coverage on Clean Energy Fuels (NASDAQ: CLNE) with a Buy rating and $23 price target Tuesday, suggesting 68% upside from current levels.
With a large-scale transition to natural gas from diesel fuel, Clean Energy is positioned perfectly to benefit from this "mega-trend," the analyst said.
"We expect this transition to result in a tipping point in demand for the company and estimate Clean Energy can become a $1 billion revenue company generating over $400 million a year in EBITDA," Brown said.
The analyst said the diesel-to-natural gas shift has already started in the refuse truck and transit bus markets, which he believe is a prelude to what is about to happen in the much-larger class-8 truck market.
"Equipment costs are declining and several new truck options with engines that hit the sweet-spot of the class-8 truck market are being introduced in early 2013 by nearly all major manufacturers," Brown notes. "This should drive a multi-year growth cycle and Clean Energy is moving quickly to be in position for this market growth, deploying over 150 stations along major trucking corridors as well as adding LNG liquefaction capacity."
The firm's price target is based on 12x EV/EBITDA their 2018 EBITDA estimate of $408 million discounted back five years at 12%. "Given its stage of development, recurring revenue model, and growth trajectory, we believe it is appropriate to view Clean Energy on what it can become and to discount this potential back to today," the analyst said