What: Shares of FuelCell Energy (NASDAQ:FCEL) surged this morning on the news that the company had completed several awards from the Department of Energy to develop new uses for its fuel cell power generators.
So what: The deal announced today will add about $24 million to FuelCell Energy's backlog of projects and has the potential to open up several new outlets for the company's fuel cell technology. The Department of Energy has asked FuelCell Energy to explore the possibility of: carbon capturing at traditional power generating facilities; manufacturing and commercializing the use of solid oxide fuel cells, a more efficient fuel cell design, but one with other operational hurdles; and the development of a fuel cell that can generate hydrogen from some source other than natural gas.
The number that really stands out here, though, is the amount that FuelCell will be able to add to its non-service backlog. One issue that isn't the most encouraging for an advanced technology company looking to grow into profitability is that its product and advanced technology backlog has not grown much over the past several quarters. Granted, an emerging energy technology will almost always have lumpy growth, but for over a year the company's total product backlog has been rather flat. Even more, the company is still struggling to improve gross margins beyond the single digits.
Now what: FuelCell has a lot of what appear to be lucrative irons in the fire with these DoE deals and some impressive-looking joint ventures with prominent energy companies and industrial manufacturers. The question remains, though, how long it will take FuelCell Energy to turn all of this into profits. The company has plans to ramp up its manufacturing capacity to 100 MW worth of fuel cells annually, and the increased production should spread around some of the fixed costs that have hampered margin expansion. For this to happen, though, FuelCell will need to get back on track with its product sales growth. Otherwise all these deals will seem like a moot point.
Until we start to see a robust turnaround in FuelCell's stalled revenue and product backlog growth, it's probably best to sit on the sidelines to see how this story develops.