FuelCell Energy (FCEL, Financial) seems to be in troubled waters after the company posted disappointing results for the third quarter 2014. Its shares have fallen approximately 10% to $2.40 in a premarket trading. It reported a drop of 20% in its sales in the third quarter. However, its loss of $0.03 per share for the third quarter was in line with consensus estimates and the loss in the same quarter a year earlier.
Looking beyond the weakness
Despite the weak numbers, FuelCell is poised to deliver handsome returns in the long run, and shareholders and investors should consider its long term prospects. Looking at the rich prospects for Fuel Cell industry and various strategic moves such as enhancement of the relationships that the company is executing should lead to a turnaround in the future.
FuelCell has enhanced its partnership with NRG Energy. This enhancement is expected to expand its sales and marketing activities for its power plants. NRG currently serves about 3 million residential as well as commercial customers in the United States. NRG also plans to offer its customers with the clean and more efficient fuel cell energy options that should certainly increase sales for its distributed FuelCell power plants.
In addition, NRG has offered about $40 million credit facility to FuelCell Energy for various project enhancements. NRG is also strategically investing in the FuelCell distributed generation solutions. This partnership with NRG will help FuelCell to tap additional opportunities in three big areas.
First, it should assist FuelCell in acquiring those customers who are looking for clean and flexible on-site power with minimum space requirement. Second, this partnership is also expected to assist FuelCell in the development of multi-megawatt fuel cell parks. Last but not the least, this relationship will help FuelCell in enhancing its existing NRG power plants as permits and interconnections are already in place.
Partnerships to count on
Moreover, the company should also benefit from its growing partnership with POSCO Energy in South Korea. FuelCell and POSCO are together constructing a manufacturing facility in Pohang, South Korea that is nearing completion. This manufacturing facility is expected to begin production in mid-2015.
Moreover, both POSCO Energy and FuelCell use the same supply chain for purchase materials that should certainly lead to improvements in its production volumes. It should also help the company to reduce its material cost from augmented purchasing volumes. The company expects this facility to produce incremental supply chain volume by 50% that should keep the company in line with material cost reduction plan going forward.
Furthermore, the company is wining various new orders in two of its primary markets, on-site combined heat and power and CHP and utility grid support. The company has recently owned 1.4 megawatt DFC 1500 power plant at the University of California. It is also installing a second power plant for United Illuminating at New Haven, Connecticut that should drive its performance in the coming year.
FuelCell Energy is also gaining traction in the global market. It is installing power plant in the primary location in London and Berlin. The company has also built relationship with IKTS in Germany. FuelCell along with its subsidiary IKTS will install, operate and maintain power plants under long-term service agreements. This agreement should enable the company to lower its total cost.
Conclusion
FuelCell Energy has various short term pains that should drive its growth in the long run. The company though has disappointed with its numbers in the couple of quarters but it provides the investors plenty of reasons to invest in the stock. Moreover, the analysts have estimated CAGR of 40%, greater than the average industry CAGR of 28.26% for the next five years that indicate remarkable growth.
