FuelCell Energy (FCEL) announced it will be providing its fiscal Q2 earnings release and conference call this Wednesday after market hours and Thursday at 10am respectively. Although FCEL has a history of net losses and negative cash flow, I believe now is a good time to get bullish for a high-risk trade ahead of its earnings. Below I have listed five reasons why.
Direct FuelCell power plants are generating ultra-clean, efficient and reliable power at more than 50 locations worldwide. With more than 300 megawatts of power generation capacity installed or in backlog, FuelCell Energy is a global leader in providing ultra-clean base-load distributed generation to utilities, industrial operations, universities, municipal water treatment facilities, government installations and other customers around the world. The company's power plants have generated more than 1.6 billion kilowatt hours of ultra-clean power using a variety of fuels including renewable biogas from waste-water treatment and food processing, as well as clean natural gas.
1. Backlog Jump.
At the end of fiscal Q1, backlog jumped substantially from $428.1 million to $318.9 million in just 3 months. What is more impressive is that service backlog specifically jumped from $78.5 million to $149.9 million, nearly doubling in 3 months. Although historically service revenues have had negative margins, service revenues in most industries tends to generate very high profit margins as sales go up. Service revenues and gross profits may have begun to turn the corner and to start to add significantly to the bottom line.
2. Insider Buying.
I always consider it a great sign when multiple insiders are buying substantial positions in the open market, especially nearing the end of the fiscal quarter. On April 17, and April 22, five different insiders executed open market purchases including the CEO, the CFO, and three members of the board the directors:
- Apr 17, 2013 BISHOP MICHAEL S.
- Officer 1,500 Purchase at $0.90 per share.
- Apr 17, 2013 BOTTONE ARTHUR A. JR.
- Officer 10,000 Purchase at $0.92 per share.
- Apr 17, 2013 ROLLS JOHN A
- Director 200,000 Purchase at $0.92 per share.
- Apr 17, 2013 GERSON JAMES D
- Director 100,000 Purchase at $0.90 per share.
- Apr 22, 2013 BROMLEY RICHARD A
- Director 20,000 Purchase at $0.98 per share.
3. Analyst Estimates.
Analysts are calling for an impressive 57.6% leap in revenue to $38.06 million. While I believe FCEL will beat that number, even just hitting it or even slightly below it may bring a lot of investor attention to FCEL. Last quarter FCEL only showed a 16.3% increase in revenue. FCEL did guide recently for $38 to $40 million in revenue for Q2, so I would be shocked to say the least if it didn't beat analyst estimates handily. Add to that the backlog will likely take another leap forward since last quarter it added backlog at three times the rate that revenue was reported. I fully expect that trend to continue, especially with a 1.4 megawatt contract announced toward the end of the quarter. Backlog may reach an eye-catching half of $1 billion with the report.
4. Possible Short Squeeze.
There are 9,356,600 shares short as of the last report. This is a short ratio of 8.0 based on current average volume. Any upward momentum movement, especially on good news, could leave shorts scrambling to cover, and there are a lot of shares short.
5. Alternative Energy Stocks Are Hot.
Tesla (TSLA), SolarCity (SCTY), and Revolution Lighting (RVLT) are three stocks that I have mentioned in my articles and all of them have seen their stock prices explode lately. FCEL with improved results could and should follow the trend of the others.
Although its hard to make a case that FCEL's market capitalization here and now is justified by the historical financial results, I believe FCEL could be a short-term winner for a trade with high-risk speculative capital. Long term its prospects are attractive as well, but I believe the easier trade is short term. If trading profits emerge for me, I will take them and avoid the long-term risks as I evaluate further. Good luck to all FCEL investors.