Fuel-Cell-Manufacturer Stocks Lose Steam

By Anna Prior 

Fuel-cell manufacturer stocks took a sharp turn lower Tuesday after a noted short seller likened one company's meteoric rise to gambling, denting some of the recent excitement about the technology's move into more commercial uses.

The companies in the sector make technologies focused on fuel cells, which through a chemical reaction convert hydrogen or gas to produce electricity to power forklifts, generators and vehicles, among other things. The sector also has a long history of unprofitability and is known for its volatile share moves and heavy short-interest positions.

Citron Research called out Plug Power Inc. on Tuesday, describing the company, which makes fuel cells for forklifts and pallet trucks, as a "casino stock," with investors gambling that they can find a buyer at a higher price. The firm warned the stock is headed to 50 cents a share based on its history of missing financial targets and its lack of unique technology.

A representative from Plug Power wasn't immediately available to comment on the Citron report.

Plug Power had a wild day in the market Tuesday, trading between $5.95 and $11.72, propelled in early trading by peer FuelCell Energy Inc.'s slightly better-than-expected revenue in its latest quarterly report.

Though that report was by no means stellar, shares of FuelCell, along with Plug Power and peer Ballard Power Systems Inc., posted double-digit gains as investors appeared to latch on to any sign of optimism to continue driving the valuations higher. All three stocks later reversed course to post equally steep declines after the Citron report was posted midday.

For its part, Plug Power has benefited from a boost in visibility after expanding an agreement with Wal-Mart Stores Inc. late last month to install more than 1,700 of the its hydrogen fuel-cell systems to power electric forklifts at six of the retailer's North American distribution centers.

Wal-Mart hopes that technology will improve its productivity and ease environmental concerns as workers should spend less time fueling a forklift truck than changing a lead-acid battery. The fuel cells also have no exhaust emissions.

Plus, if the rollout is successful, analysts have said this could open up a much wider market for Plug Power, as well as Ballard Power, which supplies the fuel-cell stacks used in Plug Power's systems.

"Wal-Mart suppliers have become more interested in our product since the announcement" and the news has also excited Plug Power's current customers as well, Plug Power Chief Executive Andrew Marsh said at a conference on Tuesday. He added he believes the company can continue to expand the market for its forklift systems for the foreseeable future.

Mr. Marsh also has suggested that the company expects to make money, or at least break even, this year, after a string of losses going back to at least 1997, further boosting enthusiasm for the stock.

Citron, however, expressed its doubts. The firm said Plug Power has made similar profit projections, only to be proved wrong. Also, Citron noted that the company has had a pact with Wal-Mart for four years.

Plug Power is expected to update its outlook when the company reports its fourth-quarter results Thursday.

Meanwhile, several auto makers are preparing to roll out emissions-free cars powered by hydrogen fuel cells instead of gasoline engines, opening up further growth opportunities. Three car makers have disclosed plans to lease a small number of new vehicles in California and in a few countries in Europe by the end of next year.

Shares of Plug Power, FuelCell and Ballard Power have all more than doubled this year, despite Tuesday's losses. All three companies have a heavy short-interest position, led by Plug Power at 16%.

"These stocks are trading on froth at these levels," said Byron Capital Markets analyst Dev Bhangui. "It's a pendulum swing--it took so long for investors to get behind them, and now they can't get enough."

Representatives from FuelCell and Ballard Power weren't immediately available for comment.

Contributing to some of Tuesday's pessimism, Lake Street Capital Markets analyst Robert Brown lowered his rating on Ballard Power to hold from buy, saying the shares "fully reflect the significant improvement in business fundamentals and the growth potential from the core forklift and back-up power markets."

While Mr. Brown said he likes Ballard's core business trends, he warned it might be a risky investment if new programs don't develop as expected.

Write to Anna Prior at [e-mail]

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