Bloom Energy Corporation (BE) and Cummins Inc. (CMI) are two established players in the hydrogen-generated energy space. BE provides solid oxide fuel cell technology and is known mainly for its Bloom Energy Server. CMI designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products. It operates through five segments: Engine, Distribution, Components, Power Systems, and New Power. 

Much improvement in infrastructure is still required for hydrogen to become a go-to alternative energy source. But, as the world continues to move toward a greener environment, the demand for hydrogen-based energy should keep rising. Because President  Biden is aiming to cut U.S. emissions by as much as 52% by 2030, the hydrogen fuel segment is expected to get a major boost, along with other alternative energy sources. So, both BE and CMI should witness increasing demand for their products.

While BE has gained 144.2% over the past year, CMI has returned 71.1%. However, in terms of their past six months’ performance, CMI is a clear winner with 15.3% returns versus BE’s 1.8%. But which of these two stocks is a better pick now? Let’s find out.

Latest Movements

BE and Baker Hughes Company (BKR) entered an agreement on May 6 to collaborate on the potential commercialization and deployment of integrated, low carbon power-generation and hydrogen solutions. The collaboration is  expected to help BE expand its product portfolio.

On May 6, CMI and KBR, Inc. (KBR) signed a memorandum of understanding (MoU) to collaborate on offering a complete and integrated solution to produce ammonia from renewable sources, which is commonly referred to as green ammonia. This is expected to help accelerate CMI’s decarbonization plans.

Recent Financial Results

BE’s revenue increased 23.8% year-over-year to $194 million for the first quarter, ended March 31. The company’s gross profit came in at $57.70 million, which represents a 126.6% year-over-year increase. Its adjusted EBITDA was  $16.10 million, up 264.2% year-over-year. Its adjusted loss per share was  $0.07 compared to $0.34 in the prior-year period.

For its first quarter, ended April 4, CMI’s sales were  $6.09 billion, which represents a 21.6% increase from the prior-year quarter. The company’s EBITDA increased 15.8% from the same period last year to $980 million. Its net income increased 18% year-over-year to $603 million, and its EPS came in at $4.05, up 19.4% year-over-year.

Past and Expected Financial Performance

BE’s revenue has increased at a 46% CAGR  over the past five years. Analysts expect the company’s annual revenue to increase 22.7% in its fiscal year 2021 and 24.4% in 2022. Its EPS is expected to grow 78.3% for the current quarter, ending June 30,and 86.6% in its fiscal year 2021. Furthermore, its EPS is expected to grow at a 25% rate per annum over the next five years.

In comparison,  CMI’s revenue has increased at a 2.3% CAGR over the past five years. Its annual revenue is expected to increase 22.1% in its fiscal year 2021 and 6.5% in  2022. The company’s EPS is expected to grow 107.2% for the quarter ending June 30 and 34.2% in 2021. Also, CMI’s EPS is expected to grow at a rate of 17.6% per annum over the next five years.

Profitability

CMI’s $20.89 billion trailing-12-month revenue  is much higher than BE’s $831.56 million CMI is also more profitable, with a 9% net income margin versus BE’s negative value.

Also, CMI’s ROA and EBIT margins of 6% and 9.9%, respectively, compare favorably with BE’s negative values.

Valuation

In terms of forward EV/Sales, BE is currently trading at 4.55x, 169.2% higher than CMI’s 1.69x. In terms of forward EV/EBITDA, BE’s 52.58x is 394.2% higher than CMI’s 10.64x.

So, CMI is the more affordable stock.

POWR Ratings

BE has an overall rating of D which equates to a Sell in our proprietary POWR Ratings system. However, CMI has an overall rating of A which represents a Strong Buy. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

BE has a D grade for Quality. This is justified because its trailing-12-month return on total capital and trailing-12-month return on total assets are negative compared to the industry averages of 5.6% and 3.9%, respectively. CMI’s A grade for Quality is in sync with its higher-than-industry profitability ratios. Its trailing-12-month return on total capital and trailing-12-month return on total assets are 10.1% and 8.2%, respectively, compared to the i5.6% and 3.9% industry averages.

BE’s F grade for Sentiment is consistent with unfavorable analyst sentiment,  while CMI has a B grade for Sentiment.

Of the 87 stocks in the B-rated Industrial – Equipment industry, BE is ranked #75. CMI is ranked #10 of 86 stocks in the A-rated Industrial – Machinery industry.

In addition to the POWR Ratings grades we’ve just highlighted, we’ve rated both BE and CMI for Growth, Value, Momentum and Stability. Click here to see the additional ratings for BE. Also, get all CMI’s ratings here.

The Winner

Because  governments worldwide  have been advancing policy measures to combat climate change, the demand for alternative and clean energy, such as hydrogen, should keep rising, benefiting both CMI and BE. However, CMI seems to be a better bet in this space based on its discounted valuation and favorable analyst sentiment compared to BE.

Our research shows that the odds of success increase if one  bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about top-rated stocks in the Industrial-Equipment industry. Also, click here to see other top-rated stocks in the Industrial-Machinery industry.

Click here to check out our Industrial Sector Report for 2021

CMI shares were trading at $261.06 per share on Tuesday afternoon, down $5.26 (-1.98%). Year-to-date, CMI has gained 15.60%, versus a 11.32% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...

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