Roth Starts FuelCell Energy At Buy, $12 Target, Cites Anticipated Orders

FuelCell Energy Inc FCEL has a $2bn pipeline with utility and industrial power customers. Roth Capital Partners’ Craig Irwin initiated coverage of the company with a Buy rating and a price target of $12, saying that the market seems to be underappreciating the company’s progress in product cost cuts.

Analyst Craig Irwin believes that management is well-positioned to execute on the $2bn pipeline with utility and industrial power customers.

Product Cost Cuts

FuelCell Energy’s product cost cuts have significantly exceeded the DOE's gap analysis, bringing product costs closer to market-clearing prices. “The 2009 DOE gap analysis estimated a 2020 cost reduction of 30% primarily on improvements to stack life and power density, lower natural gas cleanup costs, and lower costs for balance of plant, conditioning and installation,” Irwin wrote.

The partnership with POSCO has helped to pull demand forward, resulting in FY15 production of 65MW, which was close to the 70MW volume assumption in DOE's targets. The analyst expects continued progress from POSCO to reduce BOP costs from additive volumes.

Other Positives

Product electrical efficiencies of 47 percent, and as high as 60 percent for some high-efficiency units, “support a favorable economic comparison versus certain competing distributed generation solutions,” Irwin mentioned.

There are substantial catalysts in the company converting its $2bn pipeline, “including projects in Beacon Falls, CT, CA, and Long Island,” the Roth Capital Partners report noted.

Irwin expects project wins, including FY17 revenue from Beacon Falls, helping offset “a change in content, but not dollar margin, with POSCO.”

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