Industrials

Why FuelCell Energy Stock Continues Defying Gravity

Even though the S&P 500 and Dow Jones industrial average indexes traded down a bit on Monday, shares in hydrogen fuel cell stocks defied the downward trend. FuelCell Energy Inc. (NASDAQ: FCEL), for example, opened at about 5.7% higher than Friday’s closing price of $7.95.

Last Wednesday, FuelCell Energy issued nearly 40 million new shares in a secondary offering priced at $6.50. By the end of the day, shares that had traded as low as $6.52 but ended the day at $7.24, down about 11% from Monday’s closing price of $10.20.

While that number may still present a challenge for a few more days, all the signals appear to be aligned for FuelCell Energy stock to return to its price because the company plans to use nearly every dollar it raised to reduce its debt.

The company repaid all $80 million in secured debt from Orion Energy Partners and said that it may use some of its net proceeds to redeem preferred shares.

If FuelCell Energy can get on a track to profitability, investors will be only too happy with the result of the secondary offering. So far in 2020, the company has posted a GAAP earnings per share (EPS) loss of $0.34 but broken even on adjusted EPS. An expected loss of $0.06 per share in the fourth quarter implies a full-year loss of $0.40 a share.

The company is expected to cut that loss in half in fiscal year 2021. Analyst coverage on FuelCell Energy is light, with just four analysts weighing in, two with Buy ratings and two with Hold ratings. None has a price target anywhere near $8, with the highest currently at $5 a share. That’s a sign of a stock that is solidly overvalued.

What FuelCell Energy has going for it is a much cleaner balance sheet. Its preferred stock liabilities totaled $17.6 million and long-term debt totaled $167.4 million at the end of the third fiscal quarter in July. Cash and equivalents totaled $66.3 million, and short-term restricted cash totaled $6.1 million. The secondary offering soon will make these matchups look a lot better.

Don’t forget the $105 million raised in early October in another secondary offering priced at $2.10 a share. Those funds were aimed at operations, with some perhaps used to redeem preferred shares. The company is not expected to report fiscal fourth-quarter earnings until next month.

FuelCell Energy stock traded up about 2% in the noon hour Monday, at $8.11 in a 52-week range of $0.48 to $11.31.