FBR Likes Near-Term Catalysts for FuelCell Energy (FCEL); Affirms at 'Outperform'
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FBR & Co. affirms FuelCell Energy (Nasdaq: FCEL) with an Outperform rating and $9 price target after the company reported Q3 results earlier this week.
Analyst Carter Driscoll commented today,
Despite weak F3Q16 revenue, which we believe reflects a timing issue, multiple projects should be monetized in F4Q, as FCEL maintained $140M–$170M FY16 revenue guidance, implying a very strong F4Q of $56M – $86M. For F4Q, FCEL expects to monetize multiple PPA-based projects including a 5.6 MW plant for Pfizer and a 1.4 MW project for Santa Rita Jail in California. FCEL's margin profile should also improve as low-margin kit sales to POSCO Energy end, replaced by electricity revenue from long-term PPAs and multi- MW project sales (FCEL indicated that it doesn't bid on projects below 4–5 MW).
This F4Q guidance largely leaves aside the 125 MW in pending renewable awards, which we believe should be the next catalyst, along with site selection for the DOE carbon capture project. While some investors might be frustrated the renewable awards have not yet materialized, we remain convinced it's a timing issue and FCEL remains well-positioned to capture the 63.3 MW Beacon Falls project (superior economic profile), some of Connecticut's DEEP 2–20 MW RFP (using a new competitive product), and PSEG's Long Island–based 40 MW fuel cell RFP (lower costs than competitors).
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