Alternative energy upstart FuelCellEnergy (NASDAQ:FCEL) will report earnings tomorrow morning for the third quarter of fiscal year 2006. We'll take a look at the company to see whether or not we should expect sparks flying in the morning sun.

What analysts say:

  • Buy, sell, or waffle? Six analysts follow the fuel cell pioneer, and four of them advise us to buy the stock. One says "hold," and the last one "sell."
  • Revenues. $8.5 million of gross sales would satisfy Wall Street this time, though it would be a 3% decrease from the year-ago period.
  • Earnings. The average analyst estimate for net earnings calls for a quarterly loss of $0.36 per share, slightly more narrow than last year's $0.38 loss per share.

What management says:
FuelCell management is hoping to make fuel cells the power source of choice for everything from cell phones and cars to industrial and municipal power plants. The key to achieving that lies in making hydrogen generation a cost-effective process, which is largely not the case today.

Of course, there are special cases out there; privately owned onion grower Gills Onions recently ordered fuel cell generators that will run on biogas generated from onion peels. If you happen to have plenty of fuel lying around anyway, it makes sense to turn these waste products into electricity.

What management does:
Oh, dear. It looks like this company is a long, long way from profitability, and there is no clear trend up or down in these margin changes.

Marg. %

1/05

4/05

7/05

10/05

1/06

4/06

Gross

(114.6)

(110.3)

(106.7)

(111.6)

(112.1)

(104.6)

Op.

(243.6)

(240.2)

(234.4)

(235.2)

(248.3)

(224.4)

Net

(242.8)

(238.4)

(227.1)

(224.5)

(226.8)

(211.5)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
This is clearly not a company you'd invest in for its excellent financial position. Rather, it's a bet that fuel cell technology will be the Next Big Thing and that FuelCell Energy will play a major part in that sea change.

If that describes you, I hope you're prepared to hold on for a few years, at the very least. This kind of change don't happen overnight, as a full-blown fuel cell revolution will take significant infrastructure changes and the technology is still not ready for prime time. Even FuelCell says that the power efficiency of its generators is only at 30%. That's about even with diesel efficiency and much better than the 11% or so for state-of-the-art solar panels, but well below the target efficiency of 50% for the type of large fuel cell generators that FuelCell Energy makes.

This stock is expensive -- regardless of what metric or method you use for valuation -- and responds to the slightest surprise with wild swings. It's always tricky to come up with an accurate forecast for a small company like this, where the timing of a large order or two can substantially change the income statement, so I won't try. Right now, fuel cells are more of a gamble than an investment, and Fools rarely reach for the dice.

Related companies:

  • Ballard Power (NASDAQ:BLDP)
  • Energy Conversion Devices (NASDAQ:ENER)
  • Honeywell International (NYSE:HON)
  • Plug Power (NASDAQ:PLUG)
  • Millennium Cell (NASDAQ:MCEL)
  • Teledyne Technologies (NYSE:TDY)

If you're interested in alternative energy, you might like our Rule Breakers newsletter service, where some of our best Fools are hard at work finding tomorrow's technologies today. A free 30-day trial should give you an idea -- or two.

Fool contributor Anders Bylund holds no position in any of the companies discussed here, and his car runs on regular gas. You can check out Anders' holdings if you like. Foolish disclosure is always one step ahead.