Energy Business

Why FuelCell Energy Should Consider Yet Another Capital Raise

The question now may not be whether FuelCell should raise new capital. It may be if it can raise capital again.

The company already issued 25.1 million new shares of common stock a quarter earlier in 2020 in its “at the market offering program.” Those shares were sold at an average price of $2.56 per share, and it raised $62.3 million after deducting commissions. After the July 31 cut-off date of the last report, FuelCell issued an additional 3.2 million common shares in that program for additional proceeds of $7.8 million. The company had raised a total of $70.1 million in those two offerings.

More recently, FuelCell announced on October 7 that it has successfully raised $177.35 million in gross proceeds from multiple equity offerings from its at the market program and from underwritten offerings. That was after a September 29 capital raise of $91.3 million after selling 43.5 million shares at $2.10 per share. That offering was then finalized at just over 50 million shares after the overallotment, and it raised $105 million in gross proceeds.

Where this story gets more interesting is that JPMorgan, which was the first-named underwriter in September’s underwritten offering, just today downgraded this stock to Neutral from Overweight based on valuations. Despite a rerating of alternative energy stocks on the back of a Biden presidency, the analyst still sees good fundamentals and thinks FuelCell Energy is headed for profitability 2020. This same analyst had issued an Overweight rating and a $3 price target on October 8.

While JPMorgan specified that this is not a call to sell the stock, it sees better opportunities elsewhere. When you add up all that caution and concern, did it crush the stock? It was up 12% at $5.72 on last look.

Some of FuelCell’s cash is restricted. That is pledged as performance security, and a prior press release noted that the capital is reserved for future debt service requirements, as well as for letters of credit for certain banking requirements and contracts and reserved to pay down the Orion Facility. Other details were offered up, but what creditors often do not care about is if the prior shareholders get diluted to have cash to pay off debt after a stock has risen so much. The company also has preferred shares and has used its credit facility before to pay down debt and to fund dividends for those preferred shares.

FuelCell would be in a different situation for potential capital raises if the market and trends had not gone its way. It likely would be unable to access more capital had its stock fallen rather than risen. The company has even fought off a short-seller report that had claimed some contracts had been lost, and after refuting the allegations the shares jumped from $1.92 to $2.16 the next trading day.

When you add everything up here, particularly if the market is willing to reward companies for dilution, FuelCell would be smart to raise more capital opportunistically with a straight stock offering. The state of the market likely would not even demand that FuelCell would need to enter into a convertible debt deal, and that would mean that the company would not have more liabilities in case it cannot convert the shares if the stock price were to fall again in the years ahead.

If FuelCell was far enough along financially to be able to pay common stock dividends, the dilution argument versus free money would not be very valid. It is impossible to know what the future holds, but based on a history of growth companies, there is unlikely to be a discussion of a dividend here for even a decade out. While an offering might make a dent in the stock on the announcement, the new waves of investors just do not seem to care, and they even seem to reward many companies for being opportunistic.

FuelCell Energy stock traded up 12% at $5.72 Thursday morning. Its 52-week range is now $0.48 to $5.90, after the high was hit earlier in the day. Its market cap is about $1.7 billion.