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FuelCell Energy (FCEL) has been on a wild ride lately. FCEL stock is up more than 250% over the past year, despite trading more than 50% below its 52-week high. Now one major Wall Street firm says the pullback might be a buying opportunity.
Based in Danbury, Connecticut, FuelCell builds power systems that run on fuel cells instead of the traditional electric grid. That technology has become a hot topic as data centers scramble for electricity to run artificial intelligence (AI) workloads. A fresh call from top investment bank UBS suggests FCEL stock could still have significant room to run, even after its huge yearly gain.
Why Data Centers Are Turning to Fuel Cells
Data centers need massive amounts of continuous power, and the traditional grid cannot always keep up. Interconnection queues — the waiting lists that utilities use to connect new power sources — can take years to clear. This delay is a problem for companies racing to build AI infrastructure right now.
FuelCell’s pitch is speed and flexibility. Its systems can be installed behind the meter, meaning power is generated on-site rather than drawn from the grid. During the company’s fiscal second-quarter earnings call on June 8, President and CEO Jason Few said the company’s pipeline of proposed projects reached 4 gigawatts, more than triple the prior quarter’s total. Few noted that data-center customers make up about 89% of that pipeline.
The company also introduced a new 12.5 megawatt power block this year, a standardized product meant to help customers scale up in phases instead of overbuilding all at once. Few said on the earnings call that the product has become a strong selling point in customer conversations, in part because it improves the economics of larger deployments.
Financially, the quarter was mixed. Total revenue came in at $35.6 million, down about 5% year-over-year (YOY) largely due to lower service revenue. The company also posted a net loss of $77.6 million, driven primarily by a non-cash $42.6 million charge related to the upgrade of its Groton U.S. Navy submarine base project. Still, adjusted EBITDA improved 12% YOY, and the company closed the quarter holding roughly $441 million in cash.
UBS Sees Upside After New Deals
UBS recently upgraded FCEL stock to a “Buy” rating from “Neutral” and lifted its price target to $27 from $22. That new target points to roughly 45% potential upside from current levels.
The upgrade leans heavily on two recent partnership announcements. On June 24, FuelCell Energy and Fit Energy announced a strategic agreement to supply up to 380 MW of clean power to data centers, with an initial 30 MW deployment expected later this year. FuelCell Energy CEO Jason Few called the deal a validation of the company’s decision to expand manufacturing to 500 MW of annual capacity.
Reportedly, UBS compared the arrangement to a pattern seen at rival Bloom Energy (BE), where early test deployments with customers such as Oracle (ORCL) and AEP (AEP) later grew into much larger orders. Analysts believe Fit Energy could move forward with the remaining roughly 350 MW in its agreement if the initial rollout performs well, which would meaningfully boost revenue visibility. UBS also pointed to FuelCell’s strong recent revenue growth, while FuelCell Energy recently received a second catalyst in the form of a collaboration with Siemens (SIEGY).
Cash Moves Signal Growth Ahead
FuelCell Energy has been raising capital to fund its expansion. This month, the company priced an upsized offering of about 10.7 million shares at $21 per share, expected to raise about $225 million before fees. The funds are earmarked for manufacturing capacity growth and general corporate purposes.
Separately, the Export-Import Bank of the United States (EXIM) approved a $49 million financing package on June 23 to support the delivery of fuel cell equipment to a South Korean customer, according to a company statement. Management noted that this financing adds capital without further diluting shareholders.
Taken together, FuelCell Energy’s new partnerships, financing moves, and manufacturing expansion plans are the backdrop UBS is betting on. Whether that translates into the kind of order growth UBS expects will likely become clearer over the next few quarters as FuelCell works to convert its pipeline into signed contracts.
FuelCell Energy has a consensus “Moderate Buy” rating on Wall Street. Of the nine analysts covering FCEL stock, four recommend a “Strong Buy” rating, three recommend a “Hold” rating, and two recommend a “Strong Sell.” The average price target of $25.29 suggests potential upside of 38% from current levels, while the $27 target from UBS points to a possible 45% climb from here.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.