FuelCell Energy (FCEL), the Danbury, Connecticut-based alternative energy company, has recently been in the news due to a new partnership with auto giant Toyota Motor (TM). The companies paired up to announce the first-of-its-kind "Tri-gen" production system at Toyota's Port of Long Beach, California, vehicle processing facility. 

FuelCell's Tri-gen technology, which uses biogas to produce renewable electricity, renewable hydrogen and usable water, will be used by Toyota Logistics Services at Long Beach to support its operations at the port - making it the first vehicle processing facility ever to be powered 100% by onsite-generated renewable energy. Toyota will also use FuelCell's technology to support the fueling needs of Toyota's yet-to-be-launched light-duty fuel cell electric vehicle Mirai, while also supplying hydrogen to the adjacent heavy-duty hydrogen refueling station to support TLS logistics and drayage operations at the port.

The news gave FCEL stock only a minor lift. On a YTD basis, FCEL is down 45%, and the shares have shed 64.4% over the last 52 weeks. Longer-term, the stock is down more than 99% from its all-time highs, set in 2004.

Given its status as a significant laggard in the stock market, will this partnership with Toyota help propel FuelCell out of penny stock status? Let's have a closer look.

About FuelCell Energy

Founded in 1969, FuelCell Energy develops and provides fuel cell technology for clean electricity generation. It designs, manufactures, operates, and services Direct FuelCell power plants. These power plants convert hydrogen into electricity through an electrochemical process, with water vapor as the only emission. FuelCell currently commands a market cap of $390.86 million.

The company is yet to be profitable. Although the last quarterly results saw the company's losses coming in narrower than Wall Street's expectations, its revenues slipped considerably from the previous year, missing the consensus estimates.

Profitability Concerns

For the first quarter ended on Jan. 31, FuelCell reported revenues of $16.7 million, which represented a sizeable decline of 55% from the prior year. Losses of $0.05 per share remained unchanged from the year-ago period, but were narrower than the consensus estimate of a loss of $0.08 per share.

The company's order backlog was reduced to $1.02 billion from $1.06 billion in the previous year, primarily due to an 8% yearly fall in the Generation order backlog.

However, FuelCell ended the quarter with an unrestricted cash balance of $297.5 million, much higher than its short-term debt levels of about $11 million.

Over the last 10 years, FuelCell's revenues have steadily decelerated, for an overall negative CAGR of 6.2% over this time frame. 

Macro Tailwinds & Strategic Moves

Despite FuelCell's uninspiring performance over the years, the company can be expected to benefit from a rise in demand for hydrogen fuel - its area of particular expertise. According to this report by consulting giant McKinsey, clean hydrogen demand is expected to surge from 90MTPA today to 125-585MTPA by 2050, with road transport accounting for 80MTPA, 50MTPA for aviation fuel, and 15MTPA for maritime.

FuelCell isn't just a leader in clean hydrogen – they're also ramping up power generation. Q1'24 saw a significant 19.1MW increase in generating capacity, bringing their total to 62.8MW. Additionally, a multi-year fleet upgrade recently replaced 30MW of modules. This extends replacement cycles and should improve margins. South Korea's focus on hydrogen for baseload power presents an exciting opportunity for FuelCell to build new capacity there.

Beyond hydrogen, FuelCell's Advanced Technology segment is securing revenue streams. A development-phase contract with Exxon Mobil (XOM) involves the co-creation of carbon capture technology, including a service agreement for the Esso Netherlands project. Looking further ahead, a collaboration with the U.S. Department of State aims to produce electrolytic hydrogen using Small Module Reactors in Ukraine. This project, expected to reach fruition by the end of the decade, could support domestic ammonia production for fertilizer.

How Do Analysts Rate FCEL Stock?

Overall, analysts have deemed FCEL stock a “Hold,” with nine analysts currently in coverage. Among those, seven rate the stock a “Hold,” and two more call it a “Strong Sell.”

The mean price target for FCEL among this group is $1.58, implying expected upside of 82.6% from Monday's closing price.

At an EV/sales ratio of 3.06, FCEL is priced at a nearly 80% discount to historical valuation multiples. But while FuelCell stock has significant upside potential over the long haul, this penny stock is likely best suited for investors willing to take the risk on more potential red ink and losses over the short term.