Fuelcell Energy

Fuelcell Energy (NASDAQ: FCEL) develops sustainable clean energy through proprietary fuel cell technology platforms.

Investment Rationale – WATCH at USD 10.09

• Being a loss-making entity, FCEL is dependent upon external resources to fund its growth plans and strategic initiatives. In the absence of adequate funding, it can face a liquidity crunch given its high-cost debt.
• FCEL’s backlog has fallen considerably in Q1 FY21 due to subdued fuel prices.
• The Covid-19 pandemic has led to increased operating cost, heightened cybersecurity risk, suspended operations, and construction delays. All these factors can further impact operational efficiencies.
• From a technical standpoint, 14-period RSI (57.16) is moving towards the overbought position, and short-term consolidation can be expected in the price.   
• The Company has poor profitability margins, and it has always remained in the negative territory, while the industry median reports positive margins.

Risk Assessments

• The business performance is exposed to volatility in energy prices, unanticipated manufacturing issues, rapid technological change, unfavourable regulatory policy, and an inadequate capital budget.
• Suspended operations due to the Covid-19 pandemic, unfavourable interest rate and foreign currency exchange rate can aggravate the reported losses.

Recent News

Additional Funding: On 4 May 2021, FCEL announced that it had received US$8 million from the US Department of Energy as Phase 2 funding for advancing its progress in solid oxide fuel cell technology.

Financial Highlights for the quarterly period ended 31 January 2021 (as on 16 March 2021)

 (Source: Company Website)

• During Q1 FY21, FCEL witnessed a weak performance in both top-line and bottom-line income statement items.
• The revenue fell to US$14.9 million, and consequently, the Company reported a gross loss in Q1 FY21 from the gross profit of US$3.3 million in Q1 FY20. In addition, the loss of operations and backlog also worsened significantly in Q1 FY21.
• In February 2021, the Company signed a power purchase agreement in Derby for a 2.8-megawatt project.
• As on 31 January 2021, FCEL had US$209.6 million in liquid assets (mainly cash and cash equivalents) post raising equity capital in the quarter.

Share Price Chart    

 (Analysis done by Kalkine Group)

Conclusion

As the Company has scored additional funding from the US Department of Energy for the technology that can convert chemical energy into electrical energy, it is a great aid for its commercialisation. However, FCEL has a history of losses and commercial viability or adoption of its solid oxide fuel cell technology is still uncertain and unproven. Moreover, the Company’s backlog has also seen a decrease of US$93.8 million in Q1 FY21, which can restrict its growth potential in the near term. In the absence of substantial growth catalysts, we are not recommending to punt on this stock presently, while we will keep a close watch over its triggering events to find an attractive opportunity to invest at the right price. The stock made a 52 week High and Low of USD 29.44 and USD 1.58, respectively.

Based on the subdued financial performance, macroeconomic uncertainties, and loss-making status, we have given a “WATCH” stance on Fuelcell Energy at the closing price of USD 10.09 (as on 1 June 2021), while we look forward to taking fresh position when we have material fundamentals or catalyst for future profitability.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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