FCEL Message Board - Msg: 24377945

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Technology Stocks : FCEL

FCEL 8.700

-0.9%

10:43 AM EST

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To: Dennis Roth who wrote (228)	3/7/2008 8:57:16 AM
From: Dennis Roth	Read Replies (1) of 238

FuelCell Energy, Inc. (FCEL): Path to profitability still fraught with uncertainty; maintain Sell - Goldman Sachs - March 07, 2008 What's changed Key takeaways from 1Q: (1) EPS of -$0.29 was worse than both our and consensus estimates of -$0.20 and -$0.24 respectively on account of lower revenue and gross margins than expected. (2) The company did not disclose any guidance for future revenue or earnings trends. (3) Manufacturing capacity was increased to be able to build out backlog. Implications Overall, our view is unchanged: FuelCell has an interesting technology but the path to profitability is fraught with uncertainty and, as such, we do not like the risk/reward to the shares at this point in time. One has to assume that annual MW sales ramp to 100-150MW+ and that costs can come down to drive a reasonable gross margin. This is all quite possible but this quarter did not give us too much to get incrementally excited about. Backlog did grow which is a positive but without a strong surge in consistent demand profits will likely remain elusive for some time. We are updating our FY2008-10 EPS estimates to -$1.13, -$1.03, -$0.51 from -$0.92, -$0.76, -$0.44 to incorporate the latest quarter’s reported information as well as reflect a slightly worse than previously forecast gross margin trend to profitability. Valuation We are lowering our 6-month target price to $5.75 from $6.75 on account of a slightly lower multiple assigned. We value the shares based on a multiple of year 5 earnings (25X our $0.40 estimate 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 profile justifies more than our Sell rating at this time. Key risks The key risk to our investment view and price target is if the commercial market for fuel cells materializes faster than we currently anticipate.

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