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FuelCell Energy: Key Projects Underpinning Investor Hopes Appear To Have Been Cancelled

Oct. 05, 2020 11:30 AM ETFuelCell Energy, Inc. (FCEL)72 Comments


  • FCEL appears to have lost two of its largest generation contract awards valued at approximately $636mn of future revenue and equivalent to ~100% of its current operating portfolio.
  • We see no evidence of this being disclosed to investors by FuelCell. Instead management has represented that the awards are nearing power purchase agreements.
  • In our view these are material developments, and failure to disclose them on the part of FuelCell could potentially jeopardize last week’s stock offering.
  • Even before any disclosure issues, we find FCEL’s premium valuation difficult to justify in the context of its struggling business and debt heavy balance sheet.
  • We value FCEL no higher than 1.7x EV/Sales on 2022E numbers or $0.70/share.

FuelCell Energy (NASDAQ: NASDAQ:FCEL) is a manufacturer of stationary fuel cell power plants for distributed power generation. FCEL's weak fundamental picture has been well documented by analysts on the sell-side and Seeking Alpha. This report focuses on previously uncovered evidence which indicates FCEL lost two large project awards this year but failed to make appropriate disclosures to investors. This is concerning in a general sense given what it signals about management’s transparency, but more immediately we question how such non-disclosures affect last week’s 50mn share follow-on offering.

Loss of Significant Contract Awards Undisclosed

FuelCell Energy won three significant contracts awards from PSEG Long Island in 2017 with 39.8 megawatts (MW) of capacity worth up to $800mn of future revenue potential over the life of the projects under PSEG’s Fuel Cell Resource Feed-in Tariff (FIT IV) program. These wins were and are extremely significant to FCEL. To provide context, its backlog of contracted projects at the time was 107MW and worth $437mn. The company’s current backlog is valued at $1.1bn with total project capacity of 40.6MW.

Figure 1. FCEL disclosed backlog and awards as of 3Q 2019

Source: Company filing

The three PSEG contracts are referred to as LIPA1 (Yaphank, 7.4MW), LIPA 2 (Brookhaven Rail Terminal, 18.5MW) and LIPA 3 (Yaphank Industrial Park, 13.9MW).

Since 2017 FCEL has touted these wins as validation of the company’s carbonate fuel cell technology and management’s ability to execute in the clean energy sector. FCEL secured a power purchase agreement (PPA) for LIPA 1 in 1Q19 and the project moved into the company’s official backlog. However, we found that LIPA 2 and LIPA 3, which represented approximately $636mn in future revenue and are equivalent to 80% of current backlog and 100% of current operating assets, were cancelled earlier this year. FCEL has not only

This article was written by

Trader/Investor with credit and equity background. Interested in sharing investment ideas (long and short) and engaging with other investors. Appreciate all feedback.

Analyst’s Disclosure: I am/we are short FCEL.

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