FuelCell Energy: This $2.44 Stock Is Set Soar Higher

Jul.23.14 | About: FuelCell Energy, (FCEL)

Summary

The global fuel cell market is expected to grow at a CAGR of 32%, and FuelCell Energy has prepared itself to make the most of it.

FuelCell's end market is growing rapidly, while it is winning over customers across the globe, strengthening its prospects.

FuelCell's bottom line is expected to grow at an impressive rate going forward, making the stock a solid buy.

The global fuel cell technology market is growing at a terrific pace. According to a report, the fuel cell market is on track to grow from an estimated $629.8 million in 2013 to $2.5 billion by 2018, at a CAGR of 32.2%. The market will be driven by various applications such as power backup, household demand, telecom, automobile, etc. FuelCell Energy (NASDAQ:FCEL) is one such company that's looking to make the most of this market, and the company has made some impressive moves in fuel cell technology.

The end-market is growing rapidly

Although FuelCell's recent second-quarter results were not up to the mark, its long-term prospects look intact. FuelCell is seeing impressive growth in its services and license revenue, which grew 76% year over year in the previous quarter. Growth in the company's installed base led to higher service revenue, along with scheduled fuel cell module exchanges.

Going forward, FuelCell is highly-optimistic about its prospects due to the rapid growth expected in the end market.

In the second half of the year, FuelCell expects its new and existing orders to boost its sales by $100 million-$120 million. According to management, new orders for power plants and service agreements carry higher margins, and this will be beneficial for FuelCell in the long run. As reported on Bloomberg:

Our second quarter was not as high in revenue as we would have liked, Bottone said today on a conference call. His team is negotiating for sales contracts that could lead to orders of 300 megawatts of power plants in the U.S. and Europe. "We are actively bidding on multimegawatt utility projects that we were not in a position to pursue in the past.

With new orders of higher-margin power plant sales and service agreements, the company expects to reach a break-even level this year for earnings before interest, taxes, depreciation and amortization, Bottone said.

FuelCell is currently producing 70 megawatts of fuel cells annually at its factory in Torrington, Connecticut, and said it will be able to report its first net income when that volume increases to more than 80 megawatts.

Gaining traction with technology

Considering the opportunity in the fuel cell market and FuelCell Energy's strategic moves, it is quite possible that the company will be able to report its first net income shortly.

FuelCell is focused on producing clean, on-site combined heat and power (CHP). Besides, the company is engaged in reducing Levelized Cost of Energy (LCOE) for its customers. With these moves, FuelCell is trying to spur adoption of the technology.

Landing more customers across the globe

The company's moves have been recognized by several companies that are using its products. For example, according to management:

We recent announced a 5.6 megawatt award from United Illuminating, one of Connecticut's two electric utilities for two 2.8 megawatt DFC 3000 power plants. This represents the second-largest fuel cell power plant award we have ever received in North America. Both plants will provide clean and continuous power to the electric grid, enhancing the resiliency of the grid in a manner that supports environmental policies. We will operate these plants for UI under 20-year service agreements.

Moreover, the company has bagged a 1.4 megawatt power project from the University of Bridgeport, based on its on-site combined heat and power configuration. The company has landed many similar projects with favorable sales mix, which should improve its long-term prospects.

Furthermore, FuelCell has strengthened its strategic partnership with POSCO to enhance global market development and to reduce its product costs. This strategic partnership will help FuelCell attract multinational customers, while synchronizing its integrated supply chain, which will result in reduced material costs for the company. FuelCell has also entered into a strategic partnership with Fraunhofer IKTS, which will expand its footprint in Europe.

Conclusion

FuelCell is now actively bidding for multi-site megawatt utility projects, which it couldn't have done earlier. In addition, analysts have estimated an earnings growth CAGR of 40% for the next five years, highlighting the tremendous growth prospects of the company. The recent support from the German government is another solid endorsement, indicating that FuelCell is a growth stock that investors shouldn't miss.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.