How Large Is FuelCell’s Ultimate Opportunity?

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The alternative and renewable energy sector has enjoyed a rekindled interest in 2014. After 2008 and subsequent years, this is a welcome sign for many of the established and speculative alternative and renewable energy players. For a speculative company like FuelCell Energy Inc. (NASDAQ: FCEL), this could be the perfect storm.

24/7 Wall St. has just featured FuelCell Energy in a larger industry piece on seven alternative and renewable energy stocks with massive upside potential. Again, this is potential. There are still many things that could go wrong against the company and the industry.

FuelCell Energy is in the business of making stationary fuel cell power plants for distributed baseload power generation. The subsector of fuel cells within alternative energy and clean tech has been more than volatile in 2014, thanks in part to Plug Power Inc. (NASDAQ: PLUG). Plug Power is a very controversial stock, and its $4.85 share price (and $810 million market cap) compares to a 52-week range of $0.26 to $11.72.

What is interesting about the Plug Power rally pulling up FuelCell is that FuelCell should really be the industry’s de facto leader rather than Plug Power. After all, Plug Power’s sales have been stagnant around $26 million to $27 million for the past three years. FuelCell’s revenues grew from $120 million in 2012 to $187 million in 2013, and the revenues are expected to be almost $194 million in 2014 and $245 million in 2015.

ALSO READ: Seven Alternative Energy Stocks With Massive Upside Potential

So, FuelCell is in a broader use of fuel cells with a larger base and likely a larger opportunity, yet its $640 million market cap is smaller than Plug Power’s, despite exponentially higher revenues.

With FuelCell Energy shares trading around $2.45, the 52-week range is $1.10 to $4.74.

We would be quick to point out that there is no straight line that goes endlessly higher here for FuelCell. Sales at FuelCell sputtered in the 2011 to 2012 period around $120 million. Like most speculative alternative energy players, its profitability is also still a ways out. The company even has a rising cumulative loss amount of almost $780 million, and it trades at a negative book value.

Zacks Investment Research recently was very cautious, saying of the companies in the segment, “For now, it is a wait and see situation to find out whether fuel cell can offer a realistic solution to power generation and greenhouse gas emissions or whether its potential is only good on paper.”

Our take is that the 50 worldwide locations in which the company has its FuelCell power plants installed is just the proverbial tip of the iceberg. The company already has strategic alliances with POSCO, Enbridge, the Fraunhofer Institute, NRG and Abengoa.

The company services utilities, industrial operations, universities, municipal water treatment facilities, government installations and others. Its power plants are extremely flexible as well, using renewable biogas, clean natural gas or directed biogas. Its current statistics as of April are as follows: 2,323,772,800 total kWh generated by DFC plants, which is said to be sufficient to power approximately 210,487 average size U.S. homes for one year.

With so much of the world’s corporate activities being in very remote locations and with such a high demand for cleaner energy use, FuelCell literally could be sitting on top of a billion dollar business. If that occurs, FuelCell could easily become a target of larger industrial giants who want its market position.

ALSO READ: The NRG’s $2.5 Billion Wind Acquisition

Again, the alternative energy companies we have featured are very speculative. Many issues could crush their growth opportunity ahead. We would also point out that the handful analysts in the Thomson Reuters universe only have a price range target of $3.40 to $4.00. That being said, FuelCell shares already topped that in 2014, and this was the equivalent of a $10, $20 and even $40 stock back in 2000 or so before its stock fell from grace.