FuelCell: Not the Hydrogen Economy Play You’re Looking For

As with many growth sectors, the new energy segment has taken a beating recently. And while some would say the dip is an opportunity to load up on shares at bargain prices, Wells Fargo Praneeth Satish recommends the opposite when considering FuelCell Energy’s (FCEL) prospects.

In fact, even after FCEL shares have retreated by 67% from the mid-Feb highs, Satish thinks it is hard for the company to justify its current standing in the market.

To this end, Satish initiated coverage of FuelCell with an Underweight (i.e. Sell) rating and a $9 price target. (To watch Satish’s track record, click here)

FuelCell is part of the nascent hydrogen economy, an industry still in its early innings and expected to boast some serious growth over the next few years. As such, Satish has laid out the most bullish and bearish scenarios for the company.

Looking at the upside potential, if, post-commercialization, FCEL’s carbon-capture business attains high-speed growth, and the stationary power hydrogen market picks up steam faster than anticipated, Satish thinks the stock could be worth $17 a share, with revenue growing at a CAGR (compound annual growth rate) of 42% during the next 10 years.  

At the other end of the spectrum, if FCEL’s new products such as the solid oxide platform and carbon capture will fail commercially and the company’s carbonate distributed generation business continues to be its only reliable source of revenue, Satish expects the shares to be worth $3 a piece, with revenue increasing at a 22% CAGR over the next decade.

Ultimately, however, Satish’s base model projects FCEL will grow over the same period at a 32% CAGR. And while this estimate calls for “continued growth in FCEL’s established carbonate fuel cell business and commercial success in FCEL’s technologies under development,” this scenario is not enough to persuade Satish that FCEL represents a sound investment.

“While the company should benfit in the coming years from the commercialization of a new solid oxide fuel cell product and carbon capture opportunities,” the analyst summed up, “We struggle to see a likely scenario in which FCEL can grow into its valuation.”

Overall, the Street’s current assessment of FCEL presents an interesting conundrum. While 4 Holds and 2 Sells add up to a Moderate Sell consensus rating, the $10.63 average price target implies ~14% upside from current levels. (See FCEL stock analysis on TipRanks)

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