FuelCell Energy (NASDAQ:FCEL) saw its shares decline sharply on Thursday, closing at $28.11, a drop of 11.85%. The selloff came as the stock retreated from the Fit Energy warrant trigger level, which has become a key focus for traders. U.S. markets were closed Friday for Independence Day, but the week still saw FCEL gain 17.1% from its June 26 close of $24.00.
The stock had rallied earlier in the week, reaching an intraday high of $37.88 on June 30, before pulling back 25.8%. The Fit Energy warrant agreement, which includes a strike price of $26.44 and a mandatory-exercise threshold of $39.66, has emerged as the primary price test for the stock. The warrant allows Fit Energy to exercise up to 12 million shares if FCEL's volume-weighted average price stays above $39.66 for 30 consecutive trading days.
Analysts at B. Riley upgraded FuelCell Energy to Buy from Neutral and raised their price target to $32 from $13 following the Fit deal. The analysts noted that the order provides increased confidence in FuelCell's ability to secure additional data-center customers. However, the stock remains 29.1% below the $39.66 mandatory-exercise level, and the warrant terms limit Fit Energy's ownership to 19.99% of shares.
FuelCell Energy's fundamentals have not kept pace with the stock's rally. In its second-quarter results released June 8, the company reported revenue of $35.6 million, down 5% from $37.4 million a year earlier. The operating loss widened to $77.9 million from $35.8 million, and the net loss increased to $77.6 million from $37.7 million. Backlog fell to $1.14 billion from $1.26 billion. Cash and restricted cash rose to $440.9 million from $341.8 million on Oct. 31.
The Fit Energy agreement is structured in phases, with an upfront payment for the first 30 megawatts (MW) of deliveries starting this year. The full agreement could reach up to 380 MW, representing 9.5% of FuelCell's Q2 sales pipeline. FuelCell CEO Jason Few said the deal supports plans to scale operations to 500 MW, while Fit Energy CEO Joel Leonoff called it a "power foundation" for AI infrastructure.
FuelCell CFO Michael Bishop highlighted that the new $49 million in EXIM financing provides non-dilutive capital and helps fund delivery of five 2.8 MW fuel cell units to Gyeonggi Green Energy in South Korea. The financing adds to the company's cash position without diluting shareholders.
Traders are watching three key levels this week: the Fit warrant strike at $26.44, B. Riley's price target of $32, and the mandatory-exercise level at $39.66. A move above $39.66 could trigger forced exercise of vested warrants, increasing the share count and potentially pressuring the stock. The Nasdaq Composite finished down 0.80% on Thursday, while the Dow Jones Industrial Average added 1.14%.
The stock's recent rally has been driven by optimism around the Fit Energy deal, but the fundamental challenges remain. Revenue is declining, losses are widening, and the backlog is shrinking. The warrant math adds another layer of complexity, as a sustained move above $39.66 could dilute existing shareholders. For now, FuelCell Energy shares are trading at $28.11, well below the warrant trigger, as the market awaits further developments on the data-center order.
