Energy

Why FuelCell Energy Should Consider Yet Another Capital Raise

Jon C. Ogg

Published: November 19, 2020 11:15 am

Investors love catching a ride on a good secular theme. The theme for a Joe Biden presidency, at least so far, is all about alternative and renewable energy. Many stocks are garnering massive interest by retail investors, but the real money being thrown at these companies is large enough that it must include institutional assets as well.

One company that has amazed skeptics in the past week is FuelCell Energy Inc. (NASDAQ: FCEL). The stock had more than doubled from the end of last week before some late-day profit-taking on Wednesday took the gains down to only 23.7%. What’s interesting here is that there has been no formal news announcement.

This situation would be puzzling if the theme of alternative energy and renewables wasn’t so obvious. Let’s just say it is unusual to see companies have 150 million shares trade on a Tuesday for a 10% gain, and then see 229 million shares trade for nearly a 25% gain on no real news.

With what may look and feel like free money being handed out by Wall Street and Main Street for ideas, is it time for FuelCell to raise some even more opportunistic capital?

FuelCell Energy makes stationary fuel cell power plants for distributed power generation. It also makes capturing systems that separate carbon dioxide from gases of natural gas, biomass or coal-fired power plants. Many investors have known about the company for years because it has a checkered trading history that actually dates all the way back to the early 1990s, and it was in existence for two full decades before coming public.

FuelCell now has a $1.5 billion market cap. Investors are overlooking a lot here because revenue of $60.7 million in 2019 was down from $89.4 million in 2018 and even further from $95.6 million in 2017. The company also lost money each year. Still, it is the hydrogen trade and clean energy that is attracting capital.

In its fiscal third quarter of 2020, FuelCell reported revenues of $18.7 million that were down from $22.7 million a year earlier. While its operating expenses decreased 16% to $7.6 million (from $9.0 million) a year earlier, the operating loss of $10.8 million compared with a prior-year operating loss of $1.1 million. While FuelCell claimed to have an order backlog of $1.33 billion, even that was down by $54.0 million year over year.

With the buzzwords of clean energy and the hydrogen economy behind it, perhaps FuelCell might want to look at a fresh capital raise. The company launched its Powerhouse business strategy in January of 2020 to grow and transform the company over the next three years. The company was even talking about sustained profitable growth. Refinitiv still sees a loss for 2020 and 2021, but it sees nearly 20% sales growth this year and 27% next year.

FuelCell has raised capital in the past, and it even did so earlier in 2020. The reason that yet another capital raise might be a good idea is that another hydrogen economy stock just raised capital after a massive run in the stock, and its stock was hardly even punished. Plug Power Inc. (NASDAQ: PLUG) has a $10 billion market cap, and after its stock closed at $25.00 on Monday, it announced nearly an $850 million capital raise by selling 38 million shares at $22.25. The stock was back above $24.00 on last look, as though the dilution doesn’t even matter because it gives it operating and growth capital for as far as the eye can see.

Plug Power is much larger than FuelCell. And it is growing, with 2019 revenue up from $174.6 million in 2018 and $133 million in 2017. The Refinitiv consensus estimates call for $319.6 million in 2020 revenue, going to $438.7 million in 2021. Still, Plug Power is expected to post operating losses each year, and its history has been a longstanding trend of operating losses. Plug Power has been public since 1999.

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