Why FuelCell Energy Surged 25% Last Week (FCEL) By Richard Saintvilus | March 21, 2016
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Shares of FuelCell Energy Inc. (FCEL) have been on fire lately. And investors who sold these shares based on the company's first-quarter miss on revenue and earnings are now deservedly kicking themselves. But is it too late to buy back?
FCEL shares closed Friday at $7.79, up 3.5%, marking a rise of 25.6% from the prior week's close of $6.36. Companies that specialize in alternative forms of energy haven't fared well in 2016, thanks to low oil prices. FuelCell Energy, a servicer of stationary fuel cell power plants, has bucked the trend, surging some 54% over the past month. And with FCEL stock already yielding more than 61% gains in 2016 what's an investor to do?
When Will the Profits Come?
Failing to effectively answer this question has hurt the entire industry. Many companies, including FuelCell, have struggled to transform their businesses into money-making ventures. To date, the Danbury, CT.-based FuelCell has operated more on potential and not on actual performance. But things are about to change for FuelCell, which in January, was granted approval by the Connecticut Siting Council to build a 63.3 megawatt fuel cell park. (See also: Analyzing FuelCell Energy's Return on Equity.)
Once this project is completed, investors are betting that FuelCell will win more of these contracts. Cowen and Company analysts, who have a $23 price target of FCEL stock, estimate the project to be valued at around $500 million. Based on Cowen's 12-month price target of $23, there's still an implied premium of 187% on FCEL shares.
The demand for fuel cells, as evidenced by the company's backlog of $404 million, which is more than twice its projected 2016 revenue of $184 million, implies tons of pent-up demand. The backlog suggests strong revenue throughout 2016, but also plenty of growth catalysts to sustain the upward movement of the stock. All of that said, with such strong stock gains already on the table, taking some profits now would be a smart move. (See also: FuelCell Energy Earnings: Short of a Full Charge?)
The Bottom Line
FCEL shares have suffered 46% declines over the past twelve months despite the 25% increase last week, compared to a 2.38% retreat in the S&P 500 index. And if you're skeptical about the company's prospects and the extent to which FuelCell Energy can deliver on its long-term revenue and profit goals, consider the shares have a consensus buy rating and an average analyst 12-month price target of $19, implying a 138% premium from Friday's close of $7.79.