Fuel Cell stocks have had a tough go of it for several months now. The lofty days of March had given way to a downward spiral brought on by raised and unfulfilled expectations , opportunistic “journalism” which proved to be little more than a coordinated sting by big media and prominent short sellers and first quarter earnings which failed to support the new story everyone had envisaged. If you sold short in late March you have made a lot of money but there are numerous factors which make such a future bet a lot less appealing:
PLUG Power (PLUG) rose 18% yesterday while Ballard Power Systems (BLDP) was up 17% and Fuel Cell Energy (FCEL) was up 6%. Additionally, a less talked about fuel cell company, Hydrogenics (HYGS), was up nearly 14%. In addition to anticipated new order announcements, Plug Power will be added to the Russell 3000 tomorrow which means more institutional ownership of the stock in the near future. Ballard just announced a new $6M deal with Azure Hydrogen to license IP and provide fuel cell stacks for backup Telecom Power Systems, a market which Ballard sees as a strong future driver. Meanwhile, Fuel Cell Systems announced a new $900K Department of Energy (DOE) grant to produce a new system of distributed Hydrogen outside of large plants. While the market broadly continues to pay attention to the fortunes of these three companies we see an emerging focus on institutions and companies that seek to produce Hydrogen itself. By way of comparison, the $900k provided to FCEL is paltry when compared to the $116M in funding the Joint Center for Artificial Photosynthesis (JCAP) at the California Institute of Technology received from the DOE. Producing clean Hydrogen from cheap, immediately renewable, sources is the holy grail in the fuel cell quest and more than a few entities are pursuing it. We have previously focused on Hypersolar (HYSR) a small company that has made great strides in its efforts thus far and is homing in on what we expect could be some groundbreaking future announcements.
It is pretty clear the combination of greater productivity, less negative environmental impact and the use of clean, renewable sources has reached a desirability tipping point. 2014 future guidance from all the major fuel cell companies is strong. PLUG Power expects revenue growth of 125% in the second quarter year over year and over 400% year over year in the third. Ballard Power’s forecast is 16% and 32% respectively for those quarters. Fuel Cell Power’s estimate is flat to up for those same quarters yet since they are in the business of building entire plants and fuel cell energy parks their story improves (as do their margins) as more of those parks go on line. While not expected to be as buoyant as PLUG or BLDP in 2014, FCEL’s revenue growth for 2015 is expected to be 27% on $245M in revenue.
Our expectation, as it has been for some time, is that a second, more sustainable, wave is coming for these companies. This story is in its infancy and therefore to us it makes sense to place a core bet, leave it, and trade around that core as one sees fit. As always, please do your own due diligence and don’t rely on us for investment advice. Instead consult with a trusted financial adviser or institution.