FuelCell Energy (FCEL, Financial) reported some decent numbers for the fourth quarter as its losses narrowed considerably. It was driven by new order wins from its clients, especially a 15-megawatt fuel cell park from one of the largest utilities in the U.S. The company had been sailing through troubled waters for quite some time on account of its year-over-year losses. Although its present result cannot be called a turnaround, there was a minor improvement from last year as losses reduced. The stock, however, continued its dismal performance touching its 52-week low a few days back. Let’s see in detail what can we expect from FuelCell in the days ahead.
A closer look
Its revenue for the quarter declined marginally to $54.41 million from a year ago period of $55.16 million, while losses narrowed significantly to 2 cents a share compared to a loss of 5 cents last year. Its sales mix is improving but since the company couldn’t deliver all its orders on schedule, it accounted for lowered revenue from previous year. Margins on the other hand improved on account of reduction in material cost and greater manufacturing efficiencies, which enhanced its bottom line significantly.
Considering its activity level in key markets, FuelCell is expanding its presence in North America, which it intends to carry out in two phase. In the first phase, the company is focused to improve its manufacturing efficiencies by adding 90,000 square feet, which will streamline its logistic functions, consolidate warehousing and reconfigure existing production processes.
While in phase two, based on its demand, the company will add manufacturing equipment to increase its annual capacity from the current 100 megawatts to around 200 megawatts in the days to come. This is a strategic expansion plan that will allow the company to leverage low interest finance from Connecticut, which would be used to increase its activity in key markets.
FuelCell is also venturing into new technological innovations to strengthen its presence in the market. In this direction, it recently entered into a contract with UIL Holdings for an advanced hybrid FuelCell power plant referred to as the direct FuelCell Energy recovery generator (DFC-ERG). Recognizing the value of efficient and affordable clean energy, the management anticipates huge potential for this market in the future. This new innovation will enable utilities to add economically attractive and highly efficient clean distributed generation to their portfolios and achieve sustainability objectives.
In addition, NRG Energy deepened its relationship with FuelCell through a $40 million investment for executing a project finance facility, which in turn strengthened FuelCell’s market access. This partnership plays a significant part to improve its overall profitability and competitiveness of the ultra-clean solutions and services. Also it will help to drive its top line by offering its solutions on high value projects in key markets.
Similarly, the company’s deal with POSCO is moving well with around 100 megawatts of new installations in 2014. FuelCell has many more such orders lined up from the Korean steel giant in the coming years. Apart from this, the company tightened its hold in the Euro Zone, as its installations at London and Berlin are leading to enquires for megawatt class projects. Its efforts in the region have resulted in renewed European recognition, specific leadership and favorable policy trends.
Conclusion
These are some encouraging trends, which will benefit FuelCell in the days to come. It currently has a strong cash position of $108.8 million compared to $79.2 million in 2013, which will enable the company to carry out its expansion activities smoothly. However, the company is still a long way from a turnaround. It does not have any trailing P/E and a forward P/E of 125 doesn’t seem to be very impressive. Moreover, the stock has been a laggard for quite some time and even the recent numbers did not boost its momentum. Therefore in the light of these facts it seems prudent for investors to avoid this stock and look for a better option in other energy firms.
