FuelCell Energy Inc. Earnings: Will Fuel Cells Take Off?

On Tuesday, FuelCell Energy (FCEL -6.06%) will release its quarterly report, and investors haven't known what to make of the stock's massive fluctuations so far in 2014. Even as fellow fuel-cell specialists Plug Power (PLUG -6.95%) and Ballard Power Systems (BLDP -2.68%) have gone through their own ups and downs recently, FuelCell Energy focuses on a different part of the fuel-cell generation industry, and that could help it outperform Ballard Power Systems and Plug Power if its larger-scale focus draws more interest from customers.

FuelCell Energy focuses on stationary fuel-cell power plants, which produce power on a larger scale than the systems that Ballard Power Systems and Plug Power produce. FuelCell does so by using molten carbonate fuel cells, which differ from the proton-exchange membrane technology that its fuel-cell peers use. Let's take an early look at what's been happening with FuelCell Energy over the past quarter and what we're likely to see in its report.

Source: FuelCell Energy.

Stats on FuelCell Energy

Source: Yahoo! Finance.

Will FuelCell Energy earnings ever go positive?
Analysts have had mixed views in recent months on FuelCell Energy earnings, with penny-per-share adjustments downward for the current fiscal year but upward in the next fiscal year. The stock has been on a roller coaster ride, rising almost 30% since late February but giving up much larger gains from early March.

FuelCell Energy generated a lot of excitement early in the quarter, as the company won a continuation of its Energy Department award to show off the potential of its fuel-cell power plants. With what it refers to as tri-generation of power, heat, and hydrogen, FuelCell Energy hopes to produce three high-value revenue streams that can make its plants more economically feasible.

Moreover, FuelCell Energy's January-quarter earnings report looked promising initially, with solid revenue growth of 22%. Yet few investors expect FuelCell Energy to become profitable in the near future, and backlogs dropped by almost a quarter from year-earlier levels, raising concerns about whether customers will keep adopting FuelCell's technology.

Source: FuelCell Energy.

Yet the biggest challenge FuelCell Energy faces is a lack of understanding of its business model. Investors tend to lump FuelCell Energy in with Plug Power and Ballard Power Systems, even though their target customer bases are very different. Plug Power and Ballard Power Systems will largely rely on small-scale point power production needs, with the capacity to sell a huge number of individual units in order to meet larger clients' needs. FuelCell Energy, on the other hand, makes systems designed for much greater generation capacity, appealing more to utilities and larger industrial users that need reliable sources of enterprisewide power. Yet because FuelCell gets treated like Plug and Ballard, FuelCell stock actually trades at a much lower price-to-sales ratio than Plug and Ballard do.

Meanwhile, FuelCell keeps looking for more customer orders. Earlier this month, Korean conglomerate POSCO announced a new order of 5.6 megawatts of fuel-cell modules, boosting its demand above what it also receives pursuant to a much larger order spread out over the long run. One customer won't move the needle much, but FuelCell Energy knows how important it is to bulk up its client list and generate positive word of mouth.

In the FuelCell Energy earnings report, watch to see how the company compares to the growth numbers that Plug Power and Ballard Power Systems have seen recently. Like it or not, investors have to accept that FuelCell is considered in the same league as Plug and Ballard, and so it'll be important for FuelCell Energy to give positive signs of further business expansion in order to keep its shares up.

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