FuelCell's Energy Enigma
fool.com
By Stephen D. Simpson, CFA
March 8, 2005
Woe to be a fuel cell company these days. Once awarded huge market caps by starry-eyed investors, not even $50-plus oil prices can fire up the sector these days. Part of the problem is, of course, the fact that no fuel cell company is close to staunching the bleeding of cash flow that comes from its ongoing losses.
As suggested by its fiscal first-quarter earnings report for January, FuelCell Energy (Nasdaq: FCEL) isn't any different.
Odd as this may sound, FuelCell might not be spending enough money right now. Looking at rival on-site fuel cell company Plug Power (Nasdaq: PLUG), FuelCell has considerably higher product sales and more assets, but it spends only about 60% as much on non-contract research and development.
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That said, FuelCell might not have the time. The company has good partners like Caterpillar (NYSE: CAT), ChevronTexaco (NYSE: CVX), and Marubeni, but that isn't stopping it from hemorrhaging cash. While the company does have more than $230 million in cash (and minimal debt), it used $20 million in cash for the January quarter.
What's more, FuelCell estimates that it needs to ship about 100 MW to achieve break-even net income. Accordingly, it's almost certain that the company will need additional funding, as its run rate for fiscal 2004 was only 6 MW and it only has current capacity for about 50 MW per year.
FuelCell may be among the best-positioned fuel cell companies, but that may not matter. My biggest fear with the fuel cell industry remains unchanged. That is, that the big boys (GE (NYSE: GE), United Technologies (NYSE: UTX), etc.) are simply biding their time, waiting for investors to get sick and tired of supporting these money-losing companies, and then hoping to snap up the valuable R&D for a fraction of its true worth. |
