The stock volatility has now become common in the fuel cell sector due to the volatility in revenues and profitability. FuelCell Energy (NASDAQ:FCEL) is one of the companies operating in the sector; however, it is a little different from other market players such as Plug Power (NASDAQ:PLUG) and Ballard Power Systems (NASDAQ:BLDP). As a result of operating in the same sector, the investors believe FCEL is similar to the other two companies mentioned above. The image below shows the price pattern, and it is clear that FCEL's stock has been trading in the same pattern as the other two players.
Similarly, investors also confuse the earning capabilities of FCEL with other market players who largely rely on small scale point power production needs and are dependent on selling a huge number of individual units to generate revenues. On the other hand, FCEL appeals more to larger industrial customers that need a reliable source of clean energy on a larger scale.
A Glance at the Second Quarter Performance
The companies working on disruptive technologies usually do not promise high rewards in the initial stages. However, the future prospects of these companies often paint a very bright picture with long-term substantial gains. Similarly, FCEL reported its second quarter results earlier this month, which failed to satisfy the investors due to increased expectations.
FCEL reported total revenues of $38.3 million due to an unexpected sales decline in the quarter, down almost 10% compared to the same period last year. Moreover, the net loss increased to $15.8 million from $7.4 million or 7 cents a share from 4 cents, a year earlier. However, the company is expecting a revenue gain by the second half of this year - with new and existing orders to increase revenues by more than $100 million in the second half. With new orders of higher margin power plant sales and service agreements, sales in the next two quarters are likely to increase. Further, the company also reported that it currently produces 70 MW of fuel cells annually and will be able to report profits when that volume increases more than 80 MW in the coming quarters.
Source: Company Update, June 2014.
The segment, which showed tremendous revenue growth in the second quarter is the service and license segment, reporting $7.2 million, which is up almost 75% compared to the last quarter. The growing installed energy base over the last few years started reflecting in higher service revenues, and scheduled fuel cell module replacements in the second quarter exceeded the level of scheduled replacement in the same period last year. Further, the total order backlog increased to $342.8 million from $326.9 million during the second quarter, which also includes one of the two 2.8 MW power plants ordered by United Illuminating by the end of April. The second plant will be added to third quarter order backlog, totaling approximately $28 million. The United Illuminating, part of UIL Holdings Corporation (NYSE:UIL), ordered 5.6 MW (two 2.8 MW DFC3000®) fuel cell power plants to supply adequate power to approximately 5,600 homes in the desired location. Moreover, the company has signed a long-term 20-year service agreement to maintain and operate the plants; the plants are expected to be operational by early 2015. This will further increase the revenue streams from the services segment of the company, which reported a 75% increase in the second quarter.
Source: Company Update, June 2014.
As the world is getting more aware of the global warming issue, the demand for zero carbon emission, renewable energy and fuel cell energy market is increasing sharply. Individual customers are introduced with several options to opt for clean and reliable source of energy in their everyday lives. Exploring the $12 billion market opportunity for clean and reliable energy, FCEL has targeted several market segments to increase its revenues over the next few years. The company has followed multi-megawatts fuel cell park formations globally and is positioned well for future growth. The company has been awarded 16.3 MW contracts year-to-date and is confident in meeting its targeted 30 MW level in the current year. Moreover, FCEL also announced a combined heat and power project for the University of Bridgeport during the second quarter, which will follow a long-term power purchase agreement. This will diversify the customer base of FCEL, leading towards higher revenues and estimated profitability in the current year.
FuelCell Energy has a different business model compared to the other players in the sector; the company is focused on the large-scale commercial clients, which should give it an edge over its competitors. Furthermore, the growth in the services revenues shows that the company's revenues will have more stability compared to the other players as the services contracts will result in a regular stream of revenue. We believe FuelCell Energy is well-positioned to grow over the next few years as the awareness for clean energy increases.
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