Cowen Lowers FuelCell (FCEL) to Market Perform; Valuation Full Amid Robust FY14 Potential

Cowen and Company downgrades FuelCell (Nasdaq: FCEL) from Outperform to Market Perform, but raises its price target from $2 up to $2.70.

Analyst Robert Stone commented, We believe the recently completed fuel cell parks in Bridgeport, CT and Korea should open a $12 billion DG opportunity, and hydrogen co-generation adds $3 billion. Orders in H1 should drive Q4:F14 revenue and GM to EBITDA break-even.

Stone noted that shipments are expected to be about 70-MW in 2014, roughly in-line with production, and there should be back-half 2014 weighting to shipments. A higher mix of full power plant projects (vs. kit sales to POSCO) should help lift revenue to about $68 million in Q4 (vs. $44 million in Q1), and lift GM from 4.9% to 12%. In addition to volume, production cost improvements include process upgrades such as automated laser welding, the analyst said.

On hydrogen co-generation, Stone noted that FuelCell demonstrated this capability at its wastewater treatment plant in California and recently received DOE funding for a demonstration at the Torrington, CT, manufacturing site. The U.S. market could be about $1.6 billion, with a similar size in Europe.

Despite the positives, Stone believes progress this year is already baked into FuelCell's share price.

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