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FuelCell Energy Inc. (NASDAQ: FCEL)

FuelCell Energy Inc. (FCEL) is engaged in the development and manufacturing of fuel cell power plants for electric power generation. The Company’s products have generated more than 260 million-kilowatt-hours of electricity and are operating at more than 50 locations around the world. The fuel cell products Direct FuelCell or DFC Power Plants offer stationary power generation applications for customers. In addition to the commercial products, the Company develops next generation of carbonate fuel cell and planar solid oxide fuel cell (SOFC) technology. The carbonate DFC power plants electrochemically (without combustion) produce electricity directly from hydrocarbon fuels, such as natural gas and biogas fuels. The Company’s customers include manufacturers, mission critical institutions, breweries, food processors and wastewater treatment facilities.

FuelCell Energy Inc. was founded in 1969 and is headquartered in Danbury, Connecticut.

Share Statistics (10-Dec-09)			FY 2007	FY 2008	% Chg	Q3 2008	Q3 2009	% Chg
Symbol	FCEL	Revenue, $Mn	48.2M	100.7M	52.1%	27.90M	23.02M	17.5%
Current price	$2.83	Gross marg.	-56.0%	-49.0%	12.5%	n/a	-27.1%	n/a
52wk Range:	$1.98-5.47	Oper. margin	-151.6%	-92.1%	39.4%	n/a	-63.0%	n/a
Avg Vol (3m):	687,297	Net margin	-142.5%	-92.8%	34.9%	n/a	-64.7%	n/a
Market Cap.	218.6M
Dil. Shares Outst.	77.2M	EPS, $	-1.16	-1.41	21.6%	-0.39	-0.21	46.2%

Source: Reuters.com, SEC Filings.

Financial Summary

FCEL reported total revenues for the fourth quarter of 2009 of $20.4 million compared to $26.2 million in the same period last year. Product sales and revenues in the fourth quarter were $16.7 million compared to $23.3 million in the prior year quarter. Lower product revenues reflect decreased U.S. market activity due to difficult credit markets, partially offset by sales to POSCO Power, FCEL’s manufacturing and distribution partner in South Korea.

Research and development contract revenue was $3.7 million compared to $2.8 million in the prior year quarter. Higher research and development contract revenue is attributable to increased activity on the Company’s solid oxide fuel cell development contract with the U.S. Department of Energy (DOE).

The product cost-to-revenue ratio was 1.40-to-1 in the fourth quarter compared to 1.54-to-1 in the fourth quarter of 2008. The cost-to-revenue ratio improved due to lower product costs and resulted in higher product margins compared to last year. FCEL began producing its new, lower cost megawatt-class products in the latter half of 2009. The cost ratio and margins in the quarter were impacted by costs to commission the first multi-megawatt power plants in South Korea.

Net loss to common shareholders for the fourth quarter of 2009 improved 33% year-over-year to $16.2 million or $0.21 per basic and diluted share from a net loss to common shareholders of $24.3 million or $0.35 per basic and diluted share in the fourth quarter of 2008. Net losses declined primarily due to sales of higher-margin products.

Total cash and investments were $64.8 million as of October 31, 2009. Cash increased in the fourth quarter by $11.8 million as POSCO Power paid an upfront licensing fee of $10 million and invested $25 million in FCEL common stock at $3.59 per share. Excluding these transactions, net cash use was $23.2 million compared to $17.5 million in the fourth quarter of 2008. Cash use in the 2009 fourth quarter was impacted by longer than anticipated commissioning for the units in South Korea, which delayed customer milestone payments. Commissioning for these units was completed at the end of the fourth quarter. Capital spending for the 2009 fourth quarter was approximately $0.5 million and depreciation expense for the period was $2.0 million.

For the year ended October 31, 2009, FCEL revenues were $88.0 million compared to $100.7 million reported in 2008. Product sales and revenues were $73.8 million in 2009 compared to $82.7 million in 2008. Revenues from POSCO Power in fiscal 2009 were $56.1 million or 64% of the Company’s total revenues compared to $46.2 million or 46% in fiscal 2008. FCEL’s product backlog, including long-term service agreements, was $90.7 million compared to last year’s $87.6 million reflecting continued strong orders from South Korea.

Research and development contract revenues were $14.2 million compared to $18.0 million in 2008. Research and development contract backlog was $14.2 million as of October 31, 2009, compared to $4.8 million on October 31, 2008.

The product cost-to-revenue ratio improved 10% to 1.45-to-1 in 2009 compared to 1.62-to-1 in 2008. Net loss to common shareholders was $72.5 million or $1 per basic and diluted share, compared to a net loss to common shareholders of $96.6 million or $1.41 per basic and diluted share, primarily due to lower product costs compared to the prior year.

Financial Strength (10-Dec-2009)	Company	Industry	Sector	S&P 500
Quick Ratio (MRQ)	1.63	0.93	0.94	0.90
Current Ratio (MRQ)	2.14	1.01	1.03	1.06
Long-Term Debt to Equity (MRQ)	5.66	137.21	131.89	125.63
Total Debt to Equity (MRQ)	6.72	161.67	155.52	192.52

Source: Reuters.com, SEC Filings.

Analyst Consensus

Source: www.ft.com

# of Estimates	Mean	High	Low	1 Year Ago
SALES (in millions)
Year Ending Oct-09	11	95.51	112.26	90.50	128.76
Year Ending Oct-10	11	149.02	206.73	115.50	–
EARNINGS (per share)
Year Ending Oct-09	11	-0.97	-0.91	-1.05	-0.95
Year Ending Oct-10	11	-0.53	-0.35	-0.70	–
LT Growth Rate (%)	1	10.00	10.00	10.00	50.00

Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=FCEL.W

Investment Highlights

FCEL earlier this week announced the sale of a fourth DFC300 fuel cell unit to the City of Tulare, Calif., to expand the municipality’s existing fuel cell power plant to 1.0 megawatt (MW) and increase the amount of green electricity produced at the regional wastewater treatment facility. With this expansion of its on-site Direct FuelCell(R) (DFC(R)) power plant, Tulare will generate more than 40% of the electricity needed to run its water treatment operation.

The City of Tulare wastewater treatment facility serves a population of 58,000, processing 12.5 million gallons per day of sewage from domestic households and commercial sources of water discharge, including waste from the region’s seven large dairy-processing enterprises. The San Joaquin Valley region has a myriad of challenges to improving local air quality because the City of Tulare is growing at more than double the rate of California’s state-wide average.

Fuel cells help address air quality concerns because they do not burn fuel, instead processing it electro-chemically to transform it into electricity, with near-zero emissions of NOX, SOX and particulate matter. Additionally, heat is created in the process, which the system captures and applies to Tulare’s wastewater treatment process. This combined heat and power system can deliver an overall efficiency of up to 90%, which results in low CO2 emissions and reduces the wastewater plant’s overall electricity costs.

In late November FCEL announced the signing of a Licensing Agreement allowing POSCO Power to manufacture fuel cell stack modules from cell and module components provided by FCEL. These fuel cell modules will be combined with balance-of-plant manufactured in South Korea to complete electricity-producing fuel cell power plants for sale in South Korea. The License Agreement includes an upfront license fee of $10 million, which was paid at signing, as well as an ongoing royalty, initially set at 4.1% of the revenues generated by sales of the fuel cell stack modules by POSCO Power.

Additionally, POSCO Power closed on its previously announced purchase of $25 million in FCEL common stock at a purchase price of $3.59 per share, the price agreed to on June 9, 2009. Direct FuelCell (DFC) power plants generate electricity directly for South Korea’s power grid. As part of a drive to establish fuel cells as its country’s leading form of alternative energy, POSCO Power has ordered more than 68 megawatts (MW) of FCEL’s DFC units to date and built a facility to manufacture balance-of-plant systems in South Korea. Currently, approximately 23 MW of FCEL power plants are installed in South Korea, including six DFC3000 megawatt-class power plants.

Sites include POSCO Power’s headquarters and balance-of-plant manufacturing facility in Pohang; a paper company Natura; independent power producers HS Holdings and MPC; and electric utilities KOMIPO, KOSEP, and EWP, which are members of the KEPCO family of companies in South Korea. South Korea has committed 2% of its gross national product to clean energy projects — more than any other developed country. FCEL power plants operating on natural gas and biogases enable South Korean utilities to comply with the country’s aggressive clean electricity targets because they emit near-zero pollutants and they are a low-carbon solution. DFC power plants also meet South Korea’s need for green technologies that contribute to increased domestic employment. Currently, South Korea is pursuing the passage of an $85.8 billion renewable energy plan that includes a renewable portfolio standard (RPS) mandating 11% clean energy by 2030 — a total of 7,150 MW — which includes fuel cells on natural gas and further increases the market potential for DFC power plants.

Source: http://www.fuelcellenergy.com/

Technical Analysis

Source: http://stockcharts.com

FCEL is below its 50-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

FCEL is trading below its lower Bollinger Band. Relative to recent price action, the stock is currently overextended to the downside and due for either a pause or retracement.

FCEL’s MACD is currently indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below 0, which suggests that the underlying moving averages are bearish.

Comparative Analysis

Company Name	Ticker	Price per	Mrkt. Cap.	P/E		P/S
Dec-10-2009	symbol	Share, $	$ Mn	2009	2010	2009	2010
Ballard Power Systems Inc.	BLPD	2.21	185.58M	n/a	n/a	3.81	n/a
Energy Conversion Devices Inc.	ENER	11.06	503.64M	n/a	n/a	1.83	n/a
Plug Power Inc.	PLUG	0.73	95.02M	n/a	n/a	6.92	n/a
Electronics Median			261.41M	n/a	n/a	4.18	n/a
FuelCell Energy Inc.	FCEL	2.83	218.6M	n/a	n/a	2.79	n/a

Source: Thomson Financial

Insider Trading Activity

NET SHARES PURCHASE ACTIVITY Inside Purchases – Last 6 Months
	Shares	Transaction
Purchases	n/a	0
Sales	n/a	0
Net Shares Purchased (Sold)	n/a	0
Total Insider Shares Held	17.78M	n/a
% Net Shares Purchased (Sold)	0.0%	n/a

Net Institutional Purchases — Prior Qtr to Latest Qtr
	Shares
Net Shares Purchased (Sold)	(3,372,610)
% Change in Institutional Shares Held	(7.0%)

Source: Yahoo Finance

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