FuelCell Energy: Buy for Big Gains

FuelCell Energy (FCEL) announced second quarter ended April 30, 2016 total revenue of $28.58 million, slightly below $28.60 million during the same period last year. At present, FuelCell forecasts complete fiscal year 2016 revenue to be in $140 million to $170 million range.

FuelCell declared second quarter of 2016 adjusted EBITDA loss of $11.5 million compared to an adjusted EBITDA loss of $7.7 million in second quarter of 2015.

The distributed power generation company reported somewhat similar quarterly top line results as the second quarter of 2015 but, continued to suffer year-over-year bottom line loss for the quarter due to enhanced operating expenses, depicting increased timings for research and development activities coupled with delayed final product deliveries leading to loss of margins.

Strong assets

FuelCell has net cash & financing options worth $169 million with total assets exceeding $300 million and net backlog of over $400 million which allows the company to easily grow its top line over the short-term and longer term.
FuelCell’s solid backlog position is increasingly being contributed by advanced technology segment with year-over-year declining product segment backlog. Further, the key power company has solid year-over-year and sequential growth of project assets & inventory. And, the growing financing platform of FuelCell has some key global financing contributors including, DECD for providing state loans to expand capacity, PNC for lease-back/sale, nrg for project finance & construction and Hercules for providing general working capital assistance.

Going forward, FuelCell is uniquely partnering with some key market leaders to globally expand its operations while delivering attractive shareholder returns. FuelCell has successfully commissioned the installation of utility-owned gas pipeline and targets on strategically optimizing the key installed base in the beginning of fiscal 2016. FuelCell’s capacity growth is successfully progressing through the first of the two phase expansion along with diversification and strengthening of its key capital structure.

The attractive and well-diversified sources of financing being adopted by FuelCell in addition to strategic partnerships with several other key and relevant businesses is believed to deliver sustainable long-term company growth while offering impressive shareholder returns.

Impressive opportunities  

The key energy company is believed to have competitive economics with 63 megawatt of Beacon Falls project that has advanced regional economic growth profile compared to its counterparts and comprising of about $90 million of key regional tax gains which is nearly thrice the solar. The superior expansion project also has solid REC generations capabilities that is nearly 5 times solar power capability. FuelCell has strategically submitted several bids adding to over 50 megawatts of capacity for attractively capturing the CT deep 2-20 MW deep RFP growth project.

The impressive PSEG 40 MW of key fuel cell Feed-in price project has attractively-structured RFP to suitably cater to the requirements of Long Island in New York with the key project sizes ranging from 1 to 20 megawatts. Moving ahead, FuelCell has extra North American RFP growth opportunities with a robust European project pipeline and newly developed Asian pipeline through strategic partnership with POSCO energy.

FuelCell stock has plunged nearly 16.21% to about $6.15 in a recent trading session on poor second quarter company results having posted greater-than-estimated loss for the second quarter of fiscal 2016 primarily due to significant loss in sales for the quarter.

The consistent investments in long-term growth projects amid tough and still slow global recovery in international commodity demand and pricing environment is believed to soon drain the company’s key cash flows and thus, leaving it devoid of cash to continue with its daily operations profitably.

Conclusion

Overall, the investors are advised to “Sell” any equity held in FuelCell Energy Inc. considering the company’s poor near-term and longer term growth prospects with PEG ratio of -0.22, depicting no growth but decline compared to solid industry’s growth average of 1.63. The profit margin of -23.89% indicate no profit but loss. However, currently FuelCell has a solid total cash position of $76.94 million and smaller total debt of $39.89 million, encouraging the company to make future growth investments.
Published on Jun 16, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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