FCEL Message Board - Msg: 24166239

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Technology Stocks : FCEL

FCEL 8.785

-0.1%

Dec 24 12:59 PM EST

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From: Dennis Roth	12/28/2007 7:24:24 AM
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FuelCell Energy, Inc. (FCEL): DPUC decision highlights risks to bull case; maintain Sell - Goldman Sachs What's changed There have been several key developments. First, the CT Department of Public Utility Control (DPUC) draft decision approved only 16.2MW of the potential 68MW previously disclosed. Second, FCEL reported 4Q earnings. Third, the stock has been very volatile around the DUPC announcement. Implications We maintain our Sell rating as we prefer companies with a more defined path to profitability. In our view, there is simply too much uncertainty to the bull case and too little weight being placed on the bear case even with the 20%+ share price drop after the DPUC announcement. To be bullish one needs to make very strong assumptions about market demand for their product and their ability to scale down cost/watt considerably. For example, we model profitability being achieved in 2012 as revenue ramps 8X to $400mn (from $50mn) and cost per watt declines to $1,800/watt (from $4,100/watt) from 2007 to 2012. We see considerable uncertainty to FCEL's financial model even as we model it; and those that believe in better outcomes are being overly optimistic in our view. However, we do note that in the context of high energy prices and a positive tailwind for all things "alternative energy", we would be careful in shorting the stock outright given that we cannot point to a distinct catalyst to the downside other than fundamentals not materializing as bulls may hope. Valuation We are updating our estimates and target price. Our target price moves to $6.75 from $5.50 based on a multiple of year 5 earnings (27.5X our $0.39 multiple discounted back at a cost of equity of 15%). We expect the stock to continue to be volatile given the uncertainty involved but do not feel risk/reward justifies more than our Sell rating at this time. Key risks The key risk to our investment view and target price is if the commercial market for fuel cells materializes faster than we currently anticipate.

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