After falling to as low as $0.13 a share late last year, FuelCell Energy (NASDAQ:FCEL) surged back into the $2.00 range in recent weeks after signing a new deal. With Exxon Mobil (NYSE:XOM) expanding its development agreement, FCEL stock will not likely fall lower.
Why are FuelCell Energy stockholders optimistic about its future?
In addition to the new deals, the company’s financials look pretty solid and history clearly is going to end up on the side of renewable energy. Here are four factors that make FCEL stock worth a look.
Deal With Exxon
ExxonMobil and FuelCell Energy expanded its carbon capture agreement on Nov. 6, 2019. In a two-year deal, the pair will “further enhance carbonate fuel cell technology for the purpose of capturing carbon dioxide from industrial facilities.”
The $60 million deal enables FuelCell to monetize its proprietary carbonate fuel cell technology. And by capturing and then concentrating carbon, Exxon may further its commitment to reducing its pollution output.
Improved Liquidity
At the same time the company announced the deal, FuelCell established a $200 million loan facility with Orion Energy Partners. As its business grows, FuelCell may eventually generate enough cash flow to pay a dividend to shareholders. The company will have deals that add positively to its bottom line. It said:
“With this partnership, we have strengthened our balance sheet and have the funding we need to complete construction of several projects in process, continue to execute on our $2 billion backlog and project awards while driving new sales growth, all of which will generate strong cash flow.”
Better Times Ahead
FuelCell may win industry recognition for its technology as Exxon rolls out its solution. Expect better times ahead as other energy companies sign a deal with FuelCell to supply carbon-capturing solutions. At a macro level, the world is hungry for taking on global warming. So, when Exxon validates FuelCell technology in the industrial space.
FuelCell has the potential to grow further. It may have solutions in industrial applications, cement production, and refining. The chemicals, plastics, and steel-making markets also produce carbon that is harmful to the environment.
FuelCell has a carbon capture technology that benefits the environment. So, the public will look at FuelCell’s customers using it as aiming towards becoming environmentally friendly.
Risks in Holding FuelCell Energy Stock
If ExxonMobil is FuelCell’s only customer, then the total addressable market for its technology is limited. In the short-term, FCEL shareholders may worry less about the stock breaking down again. It gets up to $60 million for research and development activities.
Investors may assume FuelCell’s revenue will fall, at worst, by 31.6% in 2019 and 0.4% for the full-year 2020.
Investors may take it a step further and forecast the company’s revenue grew by at least 15% annually in the next decade. At a 5.5 times terminal revenue multiple in a 10-Year DCF revenue exit model, the stock is valued at close to fair value.
Your Takeaway on FCEL Stock
FuelCell came a long way from its liquidity problems last year to a 38 million share sale and a deal with ExxonMobil to strengthen its balance sheet.
The stock is still speculation in the short-term. But if the company meets its partner’s expectations and is rewarded milestone fees, the stock will continue recovering.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.
