FuelCell Energy: What To Watch In The Upcoming Fourth Quarter Results
Contributor since 2012 / 12057 Followers
Summary:
- Investors should pay attention to FuelCell Energy management’s prior comments, the sell-side consensus financial projections, and the company’s recent disclosures before they preview FuelCell Energy, Inc.’s Q4 performance.
- I predict that FuelCell Energy’s actual fourth quarter results will be in line with the sell-side analysts’ expectations.
- FuelCell shares aren’t undervalued based on a peer comparison, which suggests that the stock has limited upside potential.
- I rate FCEL stock as a Hold ahead of its Q4 FY 2023 results announcement.
TiaClara
Elevator Pitch
My investment rating for FuelCell Energy, Inc. (NASDAQ:FCEL) stock is a Hold.
Investors should watch the changes in consensus financial forecasts, the management’s prior disclosures and commentary, and the company’s latest announcements in setting their expectations for FuelCell Energy’s upcoming fourth quarter results report.
I don’t see FCEL delivering significant positive and negative surprises with its upcoming quarterly results release. Separately, I have a favorable opinion of the company’s recent tax equity financing disclosures, but these are already priced into FCEL’s stock price and valuations.
I previously reviewed FCEL’s financial performance for the second quarter of fiscal 2022 (YE October 31) in my write-up published on June 14, 2022. The focus of this current update is the preview of FuelCell Energy’s Q4 FY 2023 (August 1, 2023 to October 31, 2023) financial results.
The Date Of FCEL’s Q4 FY 2023 Results Announcement
Earlier this week, FuelCell Energy issued a press release disclosing that its Q4 FY 2023 results will be announced next week on December 19, 2023 before trading hours.
In the next section of this article, I outline Wall Street’s expectations of FCEL’s upcoming results release.
Analyst Expectations Of FuelCell Energy’s Fourth Quarter Financial Performance
The sell side thinks that FCEL’s performance for the final quarter of the current fiscal year will be mixed, as seen with the market’s consensus financial forecasts.
The analysts forecast that FuelCell Energy’s top line will increase marginally from $25.5 million in Q3 FY 2023 to $25.6 million for Q4 FY 2023. This represents a substantial improvement as compared to FCEL’s QoQ revenue decline of -33.5% for the third quarter of the current fiscal quarter.
On the flip side, FCEL’s net loss per share attributable to shareholders is projected to widen from -$0.06 for the third quarter of fiscal 2023 to -$0.09 in Q4 FY 2023.
I highlight my prediction of FuelCell Energy’s actual fourth quarter results in the subsequent section.
My Bet Is On In-Line Q4 FY 2023 Results For FCEL
I am of the opinion that FCEL’s actual Q4 FY 2023 financial results will meet the analysts’ expectations.
In its Q3 FY 2023 results press release, FuelCell Energy guided that the company is “on track to achieve commercial operations on the combined 16.8-megawatt installations” for Q4 FY 2023. The increase in generation revenue derived from new projects will help to offset any potential decline in product sales. Product sales tend to be more volatile from quarter to quarter, unlike Power Purchase Agreement revenue, which is recurring in nature. This raises the probability that FCEL’s actual fourth quarter top line will be in line with expectations.
With regards to FCEL’s bottom line, the company noted at its prior Q3 FY 2023 results briefing that it has “accelerated investments around our different technologies,” and this has resulted in higher “operating expenses and CapEx (Capital Expenditures), which has pushed out our profitability into the future.” As a reference, the total operating costs for FuelCell Energy rose by +33.9% YoY from $23.8 million for Q3 FY 2022 to $33.2 million in Q3 FY 2023. As such, it is reasonable to expect a wider net loss for FCEL in Q4 FY 2023 vis-a-vis Q3 FY 2023.
In a nutshell, wider losses and flattish top line for FuelCell Energy as per the sell side’s consensus projections seem to be pretty realistic.
It is also worthy of note that seven of the 10 Wall Street analysts covering FuelCell Energy’s shares have left their Q4 FY 2023 top line estimates unchanged in the last three months. During this same time frame, eight of the sell-side analysts with FCEL stock in their coverage universe chose to maintain their respective fourth quarter bottom line forecasts for FuelCell Energy. In other words, the majority of the analysts have stuck to their earlier projections and don’t expect big surprises with FCEL’s actual Q4 FY 2023 results release.
In summary, I predict that FuelCell Energy, Inc. will report revenue and bottom line numbers for Q4 FY 2023 that are in line with what the analysts have forecasted.
Eyes On Tax Equity Financings
On December 14, 2023 before the market opened, FuelCell Energy revealed in an announcement that the company had concluded “tax credit financing” deals “with Franklin Park and Group 1001 Insurance Holdings, LLC for two of its clean energy projects.” In this latest announcement, FCEL emphasized that it is critical for the company “to leverage these projects’ long-term, recurring cash flow through tax equity investments” so as “to maintain a steady pace of investment.”
FCEL had cash and investments amounting to $413.9 million as of July 31, 2023 as indicated in its Q3 FY 2023 results presentation. The recently completed tax equity financings as highlighted above will generate incremental cash flow of $27.9 million for FuelCell Energy that the company expects to receive in Q4 FY 2023 and Q1 FY 2024.
The latest tax equity financings will help to boost investors’ confidence in FuelCell Energy’s ability to secure further tax equity financing to support future capital reinvestments.
But the positives associated with this recent development have been largely factored into FCEL shares, as the market responded favorably to this piece of news with the company’s stock price surging by +11.4% on December 14. Also, FuelCell Energy is now valued by the market at 3.69 times (source: S&P Capital IQ) consensus forward next twelve months’ Enterprise Value-to-Sales (EV/S), which represents a premium to its key peers. Ballard Power Systems (BLDP), Bloom Energy Corporation (BE), and Plug Power (PLUG) currently trade at lower consensus forward next twelve month EV/S multiples of 3.45 times, 2.40 times, and 2.04 times, respectively.
Concluding Thoughts
A Hold rating for FuelCell Energy, Inc. stock is fair based on my preview of the company’s Q4 FY 2023 financial performance, and the assessment of FuelCell Energy’s latest tax credit financing announcement and the market’s reaction.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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