Shares of fuel cell company Bloom Energy (BE -1.42%) got a lift Monday morning, shooting up 8.4% by 10 a.m. ET after Bank of America upgraded the stock to buy and helped to pull shares of peer fuel cell company Plug Energy higher as well.
The upgrade follows a Thursday-evening earnings report at Bloom that sent the shares up as much as 10% Friday.
"Bloom Energy ... delivered an uncharacteristically strong year-end financial performance" in its Thursday-evening earnings report, explains Bank of America, in a note covered by StreetInsider.com.
"Revenues of $342.5mm and record acceptances of 735 systems both materially outperform[ed] Street expectations of $315mm / 597 systems respectively." And BofA sees this outperformance setting the stage "for a series of favorable updates headings into FY22."
As my fellow Fool Howard Smith pointed out last week, Bloom Energy raised its guidance for long-term sales growth to 30% to 35% annually and predicted that sales this year will be at least $1.1 billion -- with positive operating cash flow from those sales.
Going forward, Bank of America is most excited about the potential for fatter profit margins on sales at Bloom. The analyst noted that "adjusted" gross profit margins reached 21.2% in Q4 and that Bloom is targeting further improvement to 24% in 2022.
BofA pointed to the company's plan to outsource "the bulk" of its fuel cell installation to third parties as particularly propitious, because "installations had represented a historic headwind on margins."
If Bloom can outsource its low-margin work and concentrate on keeping only its highest-margin revenues in-house, the chances of the company turning at least pro forma profitable toward the end of this fiscal year (as analysts predict will happen) should improve, and there's an outside chance we could even see Bloom Energy break even on its earnings as calculated according to generally accepted accounting principles (GAAP) in 2023.