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FuelCell Energy’s Got a $1.5 Billion Problem

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Will Ashworth
·5 min read
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I recently suggested that if you could only invest in one clean energy stockFuelCell Energy (NASDAQ:FCEL) or Plug Power (NASDAQ:PLUG) — I would go with PLUG over FCEL stock.

a picture of a fuel cell
a picture of a fuel cell

Source: Kaca Skokanova/Shutterstock

That was before I even realized that Plug Power had snagged a $1.5 billion investment from SK Group, one of South Korea’s largest conglomerates.

A week on from Plug Power’s announcement, which saw PLUG jump 33% on the news, I don’t think there’s any question it’s the better buy.

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That said, FCEL stock has benefited from Plug Power’s good fortune. It’s up 43% since the Jan. 6 announcement.

If you’re thinking about riding FuelCell’s momentum, you might want to consider what Plug Power’s financial windfall means for both companies before jumping on the FCEL bandwagon.

FCEL Stock Is Up 591% Since Mid-November

In two months, owners of FCEL stock have the equivalent of an annualized return of 3,500%. I don’t think there’s any way to sugar coat this other than to say that buyers of its stock have done unbelievably well for such a short investment period.

While you’ll have to pay regular income-tax rates on your short-term capital gains if you were to sell at this point, you’ll still make out like a bandit. There’s no shame in taking profits.

You might also want to consider that Jefferies analyst Laurence Alexander initiated coverage of the provider of fuel cell solutions on Jan. 7 with a hold rating and an $11 target price.

“The ‘stars aligned for FuelCell Energy’ in 2020, given favorable policy shifts in favor of renewables and hydrogen production, progress on the company’s own growth pivot and ESG fund flows, Alexander tells investors,” The Fly.com reported.

“However, now the strong secular trends, ‘tighter operating culture’ and ‘war chest’ for longer-term growth appear largely discounted in the stock price, Alexander argues.”

InvestorPlace’s Matt McCall recently discussed the so-called war chest that Alexander wrote about in his FuelCell stock assessment. In December, FuelCell sold 25 million shares at just $6.50 per share, raising $162.50 million in the process.

More important than the company’s willingness to sell shares at $6.50, a 36% discount to its Nov. 30 share price, is the fact that Orion Energy Partners, who owned 5.9% of FCEL stock before the offering, were willing to sell down 84% of their position at the discounted price.

While it’s not unheard of for a company such as Orion, which lends and makes investments to the energy industry, to want to exit its position, to do so at such a discount ought to make you scratch your head a little.

Even more so now that FCEL is trading above $18 as I write this, up more than 15% on the day.

I would not be surprised if we were to experience an exhaustion gap in the second half of January.

Plug Power Has Stronger Backing

If Plug Power didn’t have a better roster of shareholders than FuelCell Energy before its announcement that SK Group was taking a 9.9% stake in the company, it certainly does now.

SK Group had revenue in 2019 of $119 billion, making it the 73rd largest company in the Fortune Global 500. In 2019, Plug Power had revenues of $230 million. Of SK Group’s total revenue, its energy and chemicals business accounts for almost half the conglomerate’s total.

The company is in the process of moving away from a reliance on fossil fuels.

“Mr. Chey has ordered a sweeping readjustment of SK’s portfolio to be completed within the next three years. This will include carving off carbon-intensive businesses and doubling down on the company’s multibillion-dollar bets across EVs, computer chips, biotechnology and renewable energy,” the Financial Times reported in November 2020.

“‘The era of competing for scale is now behind us . . . We want to be the best company in the ESG realm,’ Jang Dong-hyun, president of SK Holdings, which helps oversee SK’s 125 affiliates, told the Financial Times in an interview.”

This was before the Plug Power investment that will also see the two companies form a strategic joint-venture partnership to hydrogen fuel cell systems and hydrogen fueling stations to the Asian market.

As I stated in my latest article about Plug Power, it plans to hit $1 billion in revenue by 2024. With $2.1 billion in a backlog and SK Group in tow, I see the odds of success getting higher by the day.

This doesn’t even consider that Plug Power could soon have Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) as shareholders and not just customers.

By comparison, FuelCell’s largest shareholders are CVI Holdings at 5.9%, BlackRock (NYSE:BLK) at 4.4%, and Lawrence I. Rosen at 3.7%.

I don’t know about you, but I’d much rather have Plug Power’s trio of shareholders backing up its share price than what FCEL brings to the table.

The Bottom Line

The latest deal with SK Group is proof that CEO Andy Marsh’s plans to grow Plug Power are working.

While both stocks are exceedingly expensive, PLUG is the growth stock you should opt for.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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