Shares of Westport Fuel Systems (NASDAQ: WPRT) jumped 11.9% last month, according to data provided by S&P Global Market Intelligence. But it wasn’t a smooth ride for shareholders.
The stock rose sharply the day before first-quarter 2018 results were announced when investors got access to the latest company presentation, but gave up nearly all of those gains when quarterly earnings were finally announced. There were some signs of progress, but losses continued to pile up for the alternative fuel engine technology specialist.
Investors had no trouble shrugging off those concerns a week later when Westport Fuel Systems announced the sale of its compressor business for about $14.75 million (12.5 million euros). That will shrink the company overall, but allows it to fully focus on its natural gas engines segment.
The timing is just right to open bandwidth for management and the company at large. That’s because the joint venture with Cummins, simply named Cummins Westport, is now offering its latest natural gas-fueled engines for transportation. The pair expect healthy sales and say it’s “not unreasonable” to achieve linear growth as fleet managers of heavy-duty trucks switch over to the certified near-zero emissions engines. Considering the 50-50 JV posted $317 million in revenue in 2017, investors aren’t overlooking the potential.
Those efforts should get a big boost from a combination of factors including the specifications of the new engines themselves, stricter air-quality standards being rolled out in California, and a new program between French energy giant Total and fuels supplier Clean Energy Fuels, in which the oil supermajor will help foot the incremental cost incurred by fleet managers switching from diesel to natural gas. So although electric semis get all the hype, it’s possible natural gas semis steal the show — and perhaps quicker than many think.
It’s far from certain, but Westport Fuel Systems might actually have a path to a dependably profitable business in several years’ time. How? First, the new near-zero emissions engines have to prove as successful as the major stakeholders hope they’ll be. A suddenly healthy technology ecosystem for natural gas transportation fuels provides the opportunity for Cummins Westport to knock it out of the park.
Second, Westport Fuel Systems needs to make good on its promise to cut unnecessary costs. Jettisoning the compressor business and lowering research and development expenses incurred from working on the now-commercialized near-zero emissions engines will help with those efforts. But even that might not be enough, as there’s still quite a ways to go before erasing nearly $40 million in annual net losses.
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