Shares of FuelCell Energy Inc., which makes fuel cells for electric power generation, jumped nearly 13 percent Wednesday after the company said South Korea's Posco Power ordered an unspecified number of power plants and fuel cell modules for $70 million.
FuelCell said the order for the facilities, whose combined capacity will be 25.6 megawatts, more than doubles its product backlog. Delivery is set for 2009.
Shares rose $1.02, or 12.8 percent, to $8.98, with volume slightly above normal trading volume.
Word of the Posco Power order encouraged investors who have been concerned about possible overcapacity at FuelCell, said Stuart Bush, senior alternative energy analyst at RBC Capital Markets, in a telephone interview.
"We view the order from Posco as tremendously bullish, but not wholly unexpected given their existing distribution and manufacturing agreement with Posco," said Bush, who has a "Buy" rating on the stock and a $14 price target.
Along with a major order from a Connecticut-based project that seeks to advance clean, renewable energy, the Posco contract is expected to lower FuelCell's costs by about 30 percent, Bush said.
"But even with these cost reductions, these fuel cells are still being sold at below cost. Basically, the idea is to seed the market and gain more hours of field testing and prove the technology out, and with such improvements continue to drive manufacturing costs down.
"The first real inflection point for the stock would be when the company sells a fuel cell at break-even or better."
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