The Long-Term Bullish Case for Fuel Tech

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Fuel Tech Inc. (NASDAQ: FTEK) is in the business of cleaning up the messy process of coal-fired power plants. The company delivers its air pollution control systems to utility, industrial and municipal solid waste customers. 24/7 Wall St. recently featured seven clean-tech stocks with significant upside potential, and Fuel Tech was one of these seven companies.

The company recently acquired PECO-FGC, an effort to expand its offerings to include particulate control solutions. The anti-coal policies of late from the U.S. Environmental Protection Agency have been a problem because it seems to shut down more utility plants that could easily be converted to cleaner coal. We will leave that estimation up to you.

Still, in an upside case and moderate base case, Fuel Tech has massive potential. The long and short of the matter is that this company helps dirty energy production less dirty. The real upside case includes much more uptake of orders from the coal plants in India, China and elsewhere that will be a part of each country’s energy policy for decades to come.

One issue that always got in the way during the 2007 to 2008 clean-tech boom was that the power plants either would not pay up or they would say that the systems were too expensive. Fuel Tech now touts that it enables its customers to operate efficiently in a cost-effective and environmentally sustainable manner.

The company’s revenues have not grown anywhere near as fast as we might have hoped, rising to $109 million in 2013 from $82 million in 2010. Still, the company has run itself with profitability for at least the past four years.

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The handful of Wall Street analysts covering Fuel Tech are looking for profits in 2014 and 2015. Sales are expected to dip in 2014, only to rise to almost $116 million in 2015. It still has $45 million in accumulated losses that can offset future earnings for tax payments.

Fuel Tech’s air pollution control technologies are already installed around the globe, with more than 900 combustion units already in place. The company was founded back in 1987, is based in Warrenville, Ill., and has two more U.S. locations, with its international offices in China and Italy.

The base case is one of normalized emerging market and developing market growth. With its stock at $6.00 on Monday, the 52-week range is $3.55 to $9.63, and the market cap is about $136 million. Fuel Tech still has many growth opportunities ahead of it — some of those will be add-on orders from existing customers.

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