Fuel Cell Follies: Off-Roading

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by Debra Fiakas CFA

Consumer adoption of hydrogen-fueled vehicles could have quite a catalytic impact on the entire fuel cell industry.  Two of the public fuel cell technology companies come to mind first:  Plug Power, Inc. (PLUG:  Nasdaq), FuelCell Energy, Inc. (FCEL:  Nasdaq) and Ballard Power Systems, Inc. (BLDP:  Nasdaq).  These companies have been toiling away for years on fuel cell technologies, finding success on the periphery with industrial, campus and power generation solutions.  All three companies trade at modest prices and could look like great bargains for investors with an extended investment horizon. 

Forklift Fuel Cells

Plug Power has found considerable success by focusing on commercial and industrial users with campus or warehouse applications.  The company has packaged its flagship hydrogen fueled membrane fuel cell with central refueling stations, winning high-profile customers like Walmart in Canada, Kroger, FedEx and even Volkswagen that have fleets of materials handling vehicles.  Sales have been growing and Plug Power was able to post $35.6 million in total sales for the twelve months ending June 2014.  However, the company has yet to produce an operating profit and required $35.9 million in cash to support operations during that twelve month period.  The company reported near $168 million in cash resources at the end of June 2014.

As was noted in the article “Investor Unplugging from  Plug Power” in April 2014, the stock has been under considerable selling pressure over the last several months.  The company’s sometimes erratic investor communications could be part of the problem.  More recently the stock has been among the victims of the correction in the U.S. equity markets.  In September 2014, the stock formed what is called a ‘double bottom breakdown’ in technical parlance, signaling a bearish sentiment pervades trading in the stock.  Momentum oscillators for the stock suggest there is little to turn around the free fall in the stock price that began in early August.  There might good reason to take a long position in PLUG if your investment horizon is far off, but there could be opportunities yet to acquire PLUG at even lower prices than today.

Fuel Cell Power Plants

The stock of FuelCell Energy has been looking oversold and the slide downward that began in early September and shows little sign of stopping. Last week FCEL completed an especially bearish formation called a ‘descending triple bottom breakdown’ by technicians who use point and figure charts.  The measure was so strong it suggests the stock could fall as low as $0.25 per share.

If FCEL trades that low, it might be considered a good value. The company’s technology transforms various fuels such as natural gas or methanol or biogas to power through its proprietary fuel cell power plants.  The company has gained some traction in the market and has over 50 installations in the power generation industry, waste water treatment plants, healthcare facilities and other locations that require always-on power sources.  FuelCell reported $181.0 million in total revenue in the six months ending July 2014, and posted a net loss of $46.3 million.

FuelCell Energy’s technology successes appear to have been enough to convince a player in the energy industry to commission a study of direct fuel cell power plants.  FuelCell Energy did not release its customers name or the value of the contract.  The development revenue will be added to $3.2 million awarded by the U.S. Energy Department to study advanced materials.

Power Stronghold in the Caribbean

Ballard Power Systems is giving FuelCell Energy some competition.  Ballard has developed technology for proton exchange membrane (PEM) fuel cells that has been commercialized for mobile and stationary power plant applications.  Ballard reported $66.8 million in total sales in the most recently reported twelve months, resulting in a net loss of $15.2 million.  Cash usage in the same period was $15.0 million.  At that cash burn rate, Ballard could last another two years or so just by relying on its cash resources that totaled $36.4 million at the end of June 2014.

Management at Ballard might not be so worried about their bank account balance.  Ballard has been supplying Plug Power with fuel cell stacks for Plug Power’s GenDrive systems deployed in forklift trucks.  A new agreement extends the supply arrangement to 2017.  Wait, there is more!  Digicell Group, a communications provider in the Caribbean and Central America, recently placed the second tranche of an order for Ballard’s ElectraGen methanol-fuel cells to be deployed around Jamaica for back-up power.  After selling these thirteen additional systems to Digicell, Ballard can boast 161 ElectraGen systems deployed and operating in the Caribbean.

The wild card in the Ballard story is new leadership.  Ballard’s chief executive officer of eight years is retiring, making room for Randy MacEwan as the new CEO.  MacEwan has industrial gas supply knowhow and extensive executive level experience in the clean energy industry.  Even with a long list of credentials there MacEwan will still have a learning curve and it is not clear if he has the ability to sketch out a road map to profitability.

It should be no surprise that Ballard shares has the same negative sentiment permeating in its trading as we have observed in PLUG and FCEL.  There appears to be little support at any price level to keep the stock from trading to below buck.  The bearish price target for BLDP is $0.75.


Three companies with recent positive fundamental developments that indicate market acceptance of their technologies and products.  Skies above these fuel cell producers are getting blue as recent developments in the automotive industry suggest a growing interest in fuel cell technologies for consumer on-road vehicle as well as commercial off-road vehicles and stationary solutions.   Three undervalued stocks with weakening trading patterns that suggest things could get worse before they get better.  For me that adds up to three stocks that should be on a watch list until the equity market finds its bottom.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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