Will FuelCell shares continue falling?

Alternative-energy firm FuelCell’s shares found themselves in a downward slide after disappointing first-quarter results.

  • FuelCell Energy (Nasdaq: FCEL) share price reaches US$15.04 per share
  • Revenue for its latest quarter underperformed Wall Street expectations
  • CEO Jason Few said the company will focus on expanding geographically
  • FuelCell’s improved balance sheet could help it commercialise new applications, JPMorgan noted
  • Trade FCEL shares with an IG account

FuelCell shares down 11.7% on the week

Shares of FuelCell Energy (FCEL), which designs, manufactures and operates ultra-clean fuel-cell power plants, edged up 0.5% to close at US$15.04 on Monday (22 March 2021).

The hydrogen-linked play reported its first-quarter financial results last Tuesday (16 March 2021) morning. That drove a lacklustre performance in FCEL shares, which are still down 11.7% since their closing price of US$17.03 last Monday (15 March 2021).

No analyst had a ‘buy’ call on FCEL as of Sunday; four recommended ‘hold’ and two rated it ‘sell’, with an average target price of US$11.30, according to Bloomberg data.

Cowen analyst Jeffrey Osborne last Friday gave a ‘market perform’ call, and cut his target price slightly to US$15 from US$15.50. Meanwhile, Canaccord Genuity recommended ‘hold’ with a lower target of US$13.50, from US$15 previously.

JPMorgan’s research team remained ‘constructive’ regarding FuelCell’s long-term prospects, but believed those prospects had been priced into the stock. It thus reiterated an ‘underweight’ rating and US$9 price target on FCEL shares.

Furthermore, FCEL was trading at about 32 times enterprise-value-to-sales for fiscal 2022, and looked ‘richly valued’ on an absolute basis and relative to most of the stocks in the alternative energy universe, JPMorgan added.

FuelCell posts worse-than-expected loss

For its first fiscal quarter ended 31 January 2021, FuelCell’s adjusted Ebitda (earnings before interest, taxes, depreciation, and amortisation) loss stood at US$7.4 million, significantly worse than the Ebitda loss of US$222,000 in the year-ago period.

Total revenue slumped 9% year-on-year to US$14.9 million for the quarter, from US$16.3 million previously.

Both the Ebitda loss and revenue were below Wall Street’s expectations of US$5 million and US$22 million respectively.

Backlog decreased 7% to US$1.27 billion as of end-January 2021, primarily due to the decrease in fuel pricing which lowered estimated future revenue.

What’s the outlook for FuelCell?

FuelCell CEO Jason Few sees growth opportunities across a multitude of applications and verticals.

The company will focus on expanding its geographic markets and driving the commercial availability of its advanced technologies solutions, Few said.

JPMorgan analysts wrote that several early-stage solutions also seem close to commercialisation, though it is unclear what the go-to-market strategy is, and whether manufacturing can scale quickly and without significant capital expenditure.

FuelCell’s balance sheet was ‘much improved’ given recent capital raises, positioning the company to execute on backlog, reduce financing costs, and commercialise new applications in 2021, JPMorgan added.

For the second fiscal quarter ending April 2021, revenue could improve quarter-on-quarter to US$19.1 million while Ebitda loss might narrow to US$5.5 million, according to a Bloomberg poll of five analysts.

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