Analyst Looks For Big Upside In FuelCell Energy (FCEL)

Lazard Capital Markets has a call out in the fuel cell sector from earlier this morning on FuelCell Energy, Inc. (NASDAQ: FCEL).  Analyst Sanjay Shrestha has maintained his Buy rating, but he has also maintained his $15.00 price target.

Shrestha recently hosted investor meetings with senior management of FuelCell Energy and he still believes its outlook remains strong with near-term catalysts, and he thinks it has the best bookings and backlog in its history.  Management also noted that it will have financing in place for two upcoming major projects that will add about $43 million to the backlog.  Shrestha also believes it will gain more traction from California and from Korea.

• a673b.bigscoots-temp.com has had this under review to be included in future "10 Stocks Under $10" weekly newsletters.  As this has been hit hard of late, we will now be reviewing this one closer.  Shrestha has a solid record on many of these small cap alternative energy stocks on a selective basis.  Capstone Turbine was another name we have looked at further after his research call, and that one has risen 50% since bing added to our "Under $10" newsletter.

The $15 target is based upon a 30x multiple on two potential revenue scenarios and EPS of $0.90-$1.20 over the next 4-6 years, discounted by 20% back four years.  Shrestha also noted that it has a solid risk/reward as its current backlog is $84.7 million, not including the above note, and FuelCell Energy has $137 million in cash and equivalents.

On a more conservative side, Shrestha noted, "Given the current market environment, and assigning a low-20s multiple on our earnings scenario, we arrive at a target of about $10, suggesting meaningful upside. Risks: FuelCell Energy is in the early states of commercialization; the company needs to balance cash burn while establishing traction in key strategic markets."

With shares up 1% at $5.85 this morning, this would leave an upside of roughly 70% to his conservative number and some 155% to the $15.00 target.  FuelCell’s 52-week trading range is $5.43 to $13.14, so shares are barely above 52-week lows and still have a long ways to go before challenging its 52-week highs.

Jon C. Ogg
March 20, 2008