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FuelCell Energy Beats Estimates — But Gets No Upgrade From This Analyst

Nice try, FuelCell Energy (FCEL) — but no cigar.

That’s the upshot of yesterday’s analysis of FuelCell’s fiscal Q3 2021 earnings release from Oppenheimer analyst Colin Rusch. On the one hand, yes, FuelCell managed to eke out a small win over analyst expectations Tuesday, reporting $26.8 million in Q3 sales (versus Rusch’s expected $21.1 million) and losing only $0.04 per share instead of the $0.05-per share loss predicted.

But FuelCell’s news apparently wasn’t quite great enough to convince Rusch to raise his Perform (i.e. Hold) rating on FuelCell stock.

Why not? Let’s review:

  • For fiscal Q3 2021, FuelCell Energy grew its sales 43.3% in comparison to Q3 2020.
  • It flipped its gross profits from a $3.1 million loss to a $1.1 million profit.
  • It narrowed its operating loss — ever so slightly — from $10.8 million lost last Q3 to $10.6 million lost this year.
  • Finally, FuelCell made more progress on the bottom line, where per share losses slimmed from $0.07 a year ago to just $0.04 this year.

At first glance, that seems pretty impressive. But consider too that FuelCell Energy’s average shares outstanding have grown by more than half over the past year (up about 53%, or more than 127 million shares). So if total losses per share have declined, part of the reason that happened is because total losses were divided among more shares outstanding. (And as a not un-important corollary, this means that if and when FuelCell ever gets around to earning a profit, its profits, too, will be divvied up among more shares — and be correspondingly smaller per share).

Granted, there’s an upside to this as well, for shareholders. One of the reasons that FuelCell has so many shares outstanding right now is because it’s sold a lot of them — and raised a lot of cash from the sales. Indeed, as it pointed out in its earnings release, FuelCell sold “approximately 44.0 million shares… under the Open Market Sale Agreement at an average sales price of $8.56 per share” between June 11, 2021 and July 31, 2021 alone, raising “gross proceeds” of $376.6 million and “net proceeds of about $369 million.”

And that was one smart sale, considering that FuelCell stock today sells for only $6.44 a share. FuelCell unloaded those shares for about 33% premium to today’s share price.

What’s more, as Rusch points out, this is money that FuelCell can put to good use. The extra cash “not only eases the ramp of construction of its project backlog,” says the analyst, “but more important, we also expect customers and finance partners will be more comfortable doing business with FCEL as it is fully capitalized to reach positive cash flow from operations and scale its manufacturing capacity.”

And in fact, that may be the most important point of all: While FuelCell didn’t tell investors how much cash it burned in Q3, we know that in the first half of this year alone, it burned through $63.3 million. Thanks to selling shares this quarter, though — albeit at the cost of significant stock dilution — FuelCell appears to have bought itself three more years before it runs out of money.

Looking at the consensus breakdown, 2 Holds and 1 Sell have been assigned over the past few days. As a result, FCEL gets a Moderate Sell consensus rating. However, with shares trading at $6.04, the $8 average price target suggests room for ~34% upside. (See FCEL stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.