Bloom Energy: Cheap Fuel Cell Stock
Summary
- Bloom Energy is the cheapest fuel cell company on the market.
- It is transforming to green hydrogen with great flexibility in its products.
- It could get profitable far ahead of other fuel cell companies.
- The company has a prudent strategy focused on sustainable growth.
I recently wrote a piece about hydrogen investments and presented Boom Energy (NYSE:BE) as a top pick in the fuel cell sector. Bloom has several advantages over other fuel cell stocks. It has an established customer base and predictable revenues for 2021. Its valuation isn't off the charts and the stock price fell back by 40% since the all-time-high in February.
Fuel cell companies are very popular at the moment. This popularity is driven by the general buzz around renewable energy and exciting new companies such as Nikola (NKLA). Fuel cells are mostly used in hydrogen applications. Read more about the hydrogen industry in my introduction to hydrogen investments.
What Does Bloom Do?
Bloom provides primarily stationary power solutions based on fuel cells. The Bloom Energy Servers provide a flexible distributed power generation system. It can run on natural gas, biogas, or hydrogen fuel. On natural gas, it's cleaner than traditional power plants and generates power onsite. When running on biogas or green hydrogen, it emits zero CO2. Bloom also offers carbon capture for fuel cell systems running on natural gas. This makes the system more expensive and less competitive.
Bloom presented its hydrogen market entry strategy in 2020. Hydrogen is a part of Bloom's strategy from the beginning. The company waited for green hydrogen to become economically feasible to actually enter the market. It has a couple of interesting features on its hydrogen platform. The cell is reversible. It can be used to produce hydrogen from electricity and to convert the hydrogen back to electricity.
New Partnership Announcement Could Be A Catalyst
Bloom actively pursues other international partnerships. It expects to announce a partnership in Europe in 2021. I believe this could be a short-term catalyst for the share price. Especially, since the company made
Bloom Energy has two existing international partnerships. Together with Samsung Heavy Industries, it designs and develops ships powered by Bloom Energy's fuel cell technology and liquid natural gas. Given the capability to run on hydrogen, this can change to hydrogen later on.
The other partnership is with SK E&C to provide stationary energy systems in South Korea. In November 2020, they announced a project where Bloom will provide fuel cells and electrolyzers. SK Group, the parent of SK E&C recently also announced a partnership with Plug Power (PLUG). Bloom's CEO mentioned that this doesn't intervene with their agreement with SK E&C on the latest earnings call. This is plausible as Plug Power (PLUG) provides PEM fuel cells and Bloom Energy provides SOFC fuel cells. Both types have different applications.
Balance Sheet And Share Dilution
Bloom is still building out the company and has negative cash flows. It needs a substantial amount of liquidity to keep funding research and to expand. It has $246 million in cash. Bloom had a negative free cash flow of $137 million in 2020. It guided for approaching positive cash flow from operations in 2021. If Capex remains about $40 million, it seems like the current cash suffices for the foreseeable future.
Bloom has $527 million long-term debt on the balance sheet. It smartly refinanced debt in August by issuing green convertible notes with a 2.5% coupon and used the proceeds to redeem older 10% notes. There is one loan due in December 2021 for $114.7 million. Bloom will probably need to refinance this debt or raise additional capital as it needs its cash for operations and growth.
Data by YCharts
There has been plenty of share dilution over the past 2 years. This comes mainly from convertible debt that is converted into shares. On a positive note, this also reduced debt over the past year. A lot of the debt is still convertible. This could cause further share dilution.
Approaching Profitability And 2025 Targets
Bloom Energy had a net loss of $27 million on revenue of $249 million in Q4 with a gross margin of 25.5%. It guided for a slightly worse margin (it guides non-GAAP) in 2021 and revenue of $950 million-$1 billion. It will most likely remain unprofitable in 2021.
Our bookings in the second half of the year gained momentum, and we have a strong backlog for 2021 that provides high project visibility into our 2021 guidance framework and improving cash flow outlook.
Source: Q4 results
Management sounded very positive in the Q4 press release and the subsequent earnings call. It seems Bloom is taking a careful approach to the 2021 target and it could be raised as the year progresses and the company ads more fuel cell capacity. Positive revenue surprises could be another great
How Risky Is Bloom's History In Accounting
This is an important risk to address. Bloom has had accounting issues that I don't want to avoid. There were issues in 2009 when the company raised capital. It is unclear whether the questionable numbers came from overambitious investment bankers solely or if Bloom Energy provided them. Hindenburg Research also published a short case in 2019.
In February 2020 the company made restatements to previous years. There is a new CFO at Bloom since April 1, 2020. Gregory Cameron held several senior executive roles at General Electric (GE). As said before, he seems to be prudent in his predictions and wants to leave room for upside. The company is cleaning up and addressing the issues raised by short-sellers like Hindenburg.
Comparison To Peers
These are different fuel cell players with different technologies and strategies. This doesn't make them directly comparable. It is however interesting to see how the industry is valued today. A lot of companies' valuations are close to popular fast-growing tech names. This is dangerous as fuel cell producers will have a hard time achieving the same high margins. They will achieve impressive growth tough.
| Company | Market cap. | Revenue (TTM) | P/S (TTM) |
| Ballard Power Systems (BLDP) | $8.31 | $117.65M | 72.10 |
| Bloom Energy (BE) | $4.74B | $794.25M | 5.96 |
| Ceres Power (OTCPK:CPWHF) | $2.99B | $27.7M | 107.9 |
| FuelCell Energy (FCEL) | $5.46B | $70.87M | 77.04 |
| Plug Power (PLUG) | $28.10B | $307.54M | 91.37 |
| PowerCell Sweden (OTC:PCELF) | $1.81B | $10.31M | 175.55 |
Ceres Power is the only other solid oxide fuel cell manufacturer on this list. Bloom is the cheapest company from a value perspective. It has by far the largest revenue. While expected revenue growth isn't as spectacular as some others relatively, it is the largest expected growth in absolute numbers.
As the table shows Bloom has by far the most reasonable valuation. I believe it's the closest to profitability as well.
Conclusion
Bloom is one of the cheapest fuel cell companies on the market. It's probably because of the shady past and accounting issues I addressed. I believe the company cleaned up. Bloom could surprise favorably in the next year. This makes Bloom an interesting stock. The switch to green hydrogen adds possibilities for its energy servers as they can be used as electrolyzers.
The renewable energy market became more volatile over the past few weeks. This creates additional opportunities as sell-offs occur fast. It's not surprising after the run-up the sector had in the past year. Bloom is more than 40% down since it peaked in February. The market is unpredictable in the short term. As the company progresses, its results and announcements will drive the stock price.
This article was written by
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