Nice try, FuelCell Energy (FCEL) — but no cigar.
That’s the result 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 take a small win over analyst expectations on Tuesday, posting revenue of $26.8 million in the third quarter (versus Rusch’s projected $21.1 million) and losing just $ 0.04 per share instead of the forecast loss of $0.05 per share.
But the news from FuelCell apparently wasn’t good enough to convince Rusch to raise his Perform (ie Hold) rating on FuelCell stock.
Why not? Let’s see:
For fiscal Q3 2021, FuelCell Energy revenue grew 43.3% compared to Q3 2020.
It converted its gross profit from a $3.1 million loss to a $1.1 million profit.
It reduced its operating loss — slightly — from $10.8 million lost in the last quarter of the third quarter to $10.6 million loss this year.
Finally, FuelCell made further progress on earnings, with losses per share falling from $0.07 a year ago to just $0.04 this year.
At first glance, that seems quite impressive. But also consider that FuelCell Energy’s average outstanding shares have grown by more than half in the past year (about 53% or more than 127 million shares). So if the total losses per share decreased, part of the reason it happened is because the total losses were spread over more shares outstanding. (And as a not insignificant corollary, this means that if and when FuelCell ever manages to make a profit, its profits will also be spread over more stocks — and be correspondingly smaller per share).
Admittedly, there is also a shareholder benefit. One of the reasons FuelCell has so many outstanding shares right now is because it has sold a lot of them — and raised a lot of money from the sale. Indeed, as it pointed out in the earnings release, between June 11, 2021 and July 31, 2021 alone, FuelCell sold “approximately 44.0 million shares…under the Open Market Sale Agreement at an average selling price of $8.56 per year.” part”. “gross revenue” of $376.6 million and “net revenue of approximately $369 million.”
And that was a smart sell, as FuelCell shares are selling for just $6.44 a share today. FuelCell redeemed those shares for about a 33% premium to the current share price.
Plus, as Rusch points out, this is money that FuelCell can use. The extra cash “not only softens the building of the project backlog,” the analyst says, “but more importantly, we also expect customers and financial partners to be more comfortable doing business with FCEL as it is fully capitalized to provide positive cash. results from operations and scaling up production capacity.”
And in fact, that’s arguably the most important point of all: While FuelCell didn’t tell investors how much money it burned in the third quarter, we know it burned $63.3 million in the first half of this year alone. Thanks to stock sales this quarter, albeit at the cost of significant inventory dilution, FuelCell appears to have bought itself three more years before it runs out of cash.
Looking at the consensus distribution, 2 Holds and 1 Sell have been allocated in the past few days. As a result, FCEL gets a consensus rating for moderate sales. However, with stocks trading at $6.04, the $8 average price target suggests room for ~34% upside potential. (See FCEL stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.