FuelCell Energy (NASDAQ:FCEL) shares surged 18.3% to $23.24 at 2:59 p.m. EDT on Friday, outperforming the broader market as the Nasdaq Composite slipped 0.28%. The sharp rally came after the company announced a significant initial agreement with Fit Energy for a 30-megawatt (MW) fuel-cell system, with the potential to expand up to 380 MW in total.
The deal, disclosed in a June 22 SEC filing, involves the sale of 2.5-MW carbonate fuel-cell blocks in four phases. The first phase of 30 MW became effective upon signing. Fit Energy has the option to add another 100 MW, followed by two additional 125-MW tranches. Each subsequent phase requires non-refundable deposits and milestone payments. Long-term service agreements are set for 15 to 20 years.
While the headline 380-MW figure suggests a substantial factory-load order, the filing reveals that the vast majority of the volume remains contingent on Fit's future elections and deposits. The initial 30-MW phase represents only about 6% of FuelCell's planned 500-MW annual production capacity at its Torrington expansion. If all 152 blocks are exercised, that would account for roughly 76% of that target.
The warrant package attached to the deal adds further complexity. FuelCell issued Fit Energy three tranches of warrants for up to 12 million shares, each tranche covering 4 million shares with a strike price of $26.44. The warrants only vest when Fit makes non-refundable deposits for future phases. Any unvested warrants expire after 24 months. At Friday's close of $23.24, the warrants remain out of the money. If all 12 million warrants are exercised, FuelCell would receive approximately $317.3 million in cash, representing about 17.7% of the 67.61 million shares currently outstanding, though the filing includes a 19.99% beneficial ownership cap.
FuelCell can only force warrant holders to exercise if the volume-weighted average price (VWAP) stays above 150% of the strike price, or $39.66, for 30 consecutive trading days—71% above the current price. As a result, the warrants are not currently generating cash or diluting shares.
CEO Jason Few emphasized that the deal supports the company's strategy to "scale our operations to 500 MW." Fit Energy CEO Joel Leonoff highlighted the potential for "behind-the-meter power solutions to data centers at gigawatt scale." However, the company's latest quarterly results reveal balance-sheet challenges. For the fiscal second quarter, FuelCell reported a backlog of $1.14 billion, down 9.9% from the prior year. Revenue fell 5% to $35.6 million, while operating loss widened to $77.9 million. The sales pipeline reached 4 GW, but the company noted these are ongoing discussions, not firm commitments.
Cash and equity remain central to the deal's execution. As of April 30, FuelCell held $440.9 million in total cash, including $373.2 million unrestricted. The company sold 10.9 million shares during the quarter at an average price of $9.45, and an additional 4.1 million shares after quarter-end at $13.31—both well below Friday's close.
Analyst sentiment remains mixed, with seven Hold ratings listed on Google Finance. Jefferies' Julien Dumoulin Smith upgraded the stock to Buy with a $24 target on Friday. UBS' Manav Gupta maintained a Hold with a $22 target, while Canaccord's George Gianarikas rated it a Buy with a $30 target. Wells Fargo's Praneeth Satish kept a Sell rating with an $8 target.
The next key catalyst is Fit Energy's phase-one election, which includes a 16% non-refundable deposit for the 100-MW phase and determines whether the first 4 million-share warrant tranche vests. Investors will be closely watching Fit's next move and FuelCell's ability to convert its pipeline into funded orders.
