FuelCell Energy, Inc. (FCEL) and Cummins Inc. (CMI) are two of the world’s emerging leaders in hydrogen-powered fuel cell technology. With the world transitioning toward a sustainable energy-based future, the demand for hydrogen-powered cells have been rising exponentially.
Both the stocks have generated significant returns over the past year. While FCEL returned 1,245.8% over this period, CMI gained 23.9%. In terms of year-to-date performance, FECL is a clear winner with a 286.1% return versus CMI’s 28%. But which of these stocks is a better pick now? Let’s find out.
Last month, FCEL received a $8 million funding award by the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy, in collaboration with the Office of Nuclear Energy to advance the demonstration and commercialization of the company’s solid oxide electrolysis high efficiency hydrogen generation technology. The system is expected to be equipped with an option to receive thermal energy, which will increase the electrolysis electrical efficiency to over 90%.
As part of the National Hydrogen and Fuel Cell Day held on October 8th, FCEL announced several developments. The company will provide Toyota Motor Corporation (TM) the distributed green hydrogen at the Port of Long Beach, California in order to accelerate the adoption of fuel cell car and truck transportation.
FCEL’s proprietary SureSource Capture platform is expected to develop advanced solutions in order to capture carbon while producing power and make changes in the energy landscape.
Earlier this month, CMI closed on the previously announced NPROXX joint venture with ETC for hydrogen storage tanks. This joint venture is expected to provide customers with hydrogen products for both on-highway and rail applications.
The company announced that it will open a new facility in Herten, Germany, which will initially focus on the assembly of fuel cell systems for global transportation leader Alstom’s hydrogen trains. With capacity of 10 megawatts per year, the Herten facility is expected to manufacture one megawatt of fuel cell systems a month for Alstom’s hydrogen-powered trains, called the Coradia iLint.
Recent Financial Results
FCEL’s advanced technology revenue surged 19.5% year-over-year to $6.9 million for the fiscal third quarter that ended July 2020. The company’s operating expenses decreased 16% year-over-year to $7.6 million. FCEL focused on its continued execution of projects in the backlog. The backlog decreased 3.9% year-over-year to $1.33 billion.
CMI’s net sales increased 32.9% sequentially to $5.1 billion for the third quarter that ended September 2020. Operating income increased 99.4% sequentially to $670 million. The company’s engine sales increased 8% year-over-year in international markets primarily driven by increased demand in China.
Expected Financial Performance
The market expects FCEL’s revenue to increase 76.1% for the quarter ending January 2021, and 27.7% next year. The company’s EPS is expected to grow 58.3% for the quarter that ended October 2020, and 48.7% next year. Moreover, its EPS is expected to grow at a rate of 15% per annum over the next five years.
On the other hand, the market expects CMI’s revenue to increase 3.4% for the quarter ending March 2021, and 11.2% next year. The company’s EPS is expected to grow 9% for the quarter ending December 2020, and 20% next year. Moreover, CMI’s EPS is expected to grow at a rate of 2.1% per annum over the next five years.
Thus, FCEL has an edge over CMI here.
CMI’s trailing-12-month revenue is $19.56 billion versus FCEL’s $64.91 million. Moreover, CMI is more profitable with a gross margin of 24.6% versus FCEL’s negative margin.
In addition, CMI’s ROE and ROA of 18.4% and 5.4%, respectively compare favorably with FCEL’s negative returns.
In terms of trailing 12-month price/sales, FCEL is currently trading at 29.36x, 1577.7% more expensive than CMI, which is currently trading at 1.75x. Moreover, FCEL is more expensive in terms of EV/Sales (46.12x versus CMI’s 1.85x).
Also, in terms of trailing-12-month price to book as well, FCEL’s 23.76x is 440% higher than CMI’s 4.40x.
Though FCEL looks much more expensive compared to CMI, it’s worth paying this premium considering FCEL’s significantly higher earnings growth potential.
Both FCEL and CMI are rated a “Strong Buy” in our proprietary POWR Ratings system. Here’s how the four components of the POWR Ratings are graded for FCEL and CMI:
FCEL has an “A” for Trade Grade, Peer Grade, and Industry Rank and a “B” for Buy & Hold Grade. In the 59-stock Industrial – Equipment industry, it is ranked #17.
CMI has an “A” for Trade Grade and Buy & Hold Grade, a “B” for Industry Rank and a “C” for Peer Grade. It is ranked #1 in the 51-stock Auto Parts industry.
Both FCEL and CMI are good investment bets considering their market dominance and continued expansion. However, FCEL appears to be a better buy, despite trading at a substantially higher valuation because of its higher earnings growth potential. The company’s proprietary SureSource Capture platform has an edge over its competitors.
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FCEL shares were trading at $10.03 per share on Monday afternoon, up $0.34 (+3.51%). Year-to-date, FCEL has gained 299.60%, versus a 13.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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