Fuel Systems Solutions Inc. (NASDAQ: FSYS) has acquired the compressor business and the right to use certain trademarks from Dresser Italia S.r.l. in an all-cash transaction. The purchase price was not disclosed.

Fuel Systems, along with competitors Clean Energy Fuels Inc. (NASDAQ: CLNE) and Westport Innovations Inc. (NASDAQ: WPRT), are driving growth in the use of natural gas in the transportation business. Natural gas producer Chesapeake Energy Corp. (NYSE: CHK) has started a $1 billion venture fund to promote natural gas as an alternative to petroleum-based transportation fuels, and Clean Energy was among the first beneficiaries of that fund.

Fuel Systems, with a market cap of around $550 million, is the smallest of the three and is trying to beef up its offerings to stay in the game. And it may be doing better than that.

The Dresser purchase includes compressed natural gas (CNG) compressor equipment, the acquisition of the CUBOGAS trademark, and a license to use the Dresser name on equipment now to be manufactured by Fuel Systems.

In the past 12 months, Westport’s share price has more than doubled, Clean Energy’s share price has risen 40%, and Fuel Systems’ price has fallen -1.2%. The story is somewhat different since the beginning of 2012. Fuel Systems’ share price has jumped 60% since January 1st, compared with rises of about 37% at both of its competitors.

Partly that’s due to a contract with General Motors Corp. (NYSE: GM) to supply the automaker with 1,200 CNG systems, and part was due to the purchase last week of 375,000 additional shares of the company’s stock by major shareholder Kevin Douglas. Douglas now owns nearly 940,000 shares of Fuel Systems’ 20 million or so shares outstanding. Douglas is also a major holder of Westport, with a reported 2.99 million shares of about 48 million outstanding.

Fuel Systems’ consensus target price is $23.00, and shares are trading today at $27.50. Westport’s target price is $33.50 and shares are trading today at $44.88. Clean Energy trades at $16.93 today, compared with a target price of $15/share. One might conclude that these three companies are more than fully valued.

But neither Westport nor Clean Energy has a positive forward P/E ratio and neither is expected to post a profit in the December or the March quarter.

Fuel Systems is expected to post a profit in both its December and March quarters, and a full year EPS of $0.30 for its fiscal year ended in December. For the current fiscal year, the consensus EPS is $0.89. The company’s forward P/E ratio is a very rich 31.

Westport has garnered most of the attention — and money — in this space for the past year or so. Fuel Systems may be on track to change that.

Paul Ausick

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