The manufacturer of fuel cell power plants, FuelCell Energy, Inc. FCEL announced its plan to go for a reverse stock split, effective immediately. However, the announcement did not go down well with its investors as the shares lost 7.9% in aftermarket trade to close at 75 cents.
Stock Split and Share Volume
FuelCell Energy’s shares will trade on a stock adjusted basis from today. Due to the reverse stock split, FuelCell’s authorized shares will come down to nearly 39.58 million from 475 million shares and will continue to trade on the exchange with the same trading symbol.
Will the Strategy Work?
The reverse stock split will undoubtedly boost the share price of FuelCell Energy from current levels. FuelCell’s shares closed at 82 cents yesterday, down nearly 48.1% year to date. Will FuelCell be able to hold on to the stock adjusted price post reverse stock split?
FuelCell has been reporting in the red and things don’t look like it would change in the final quarter of the year. The concept of the fuel cell power system is promising but it is yet to deliver to its true potential.
We believe that the reverse stock split will temporarily increase the prices of the shares so that the stock does not remain in the abnormally low category, which might invoke the delisting process. But until we see a broad-based uptake of fuel cell technology, these stop gap measures aren’t likely to help the company.
Recent Reverse Stock Split in the Energy Space
Recently, two major coal companies, Peabody Energy Corporation BTU and Arch Coal ACI, opted for a reverse stock split to keep themselves listed on the bourses. Peabody and Arch Coal had lost nearly 79.6% and 90% of their respective share value from the start of the year before opting for a reverse stock split.
Ground Realities
In reality, even after consistent investment to improve fuel cell technology, it failed to receive wide acceptance. Though fuel cell contracts for buses and forklifts have been common, they haven’t succeeded in driving the performance of these companies. Wal-Mart did purchase some GenDrive systems from Plug Power PLUG but the enthusiasm generated in the space was short lived.
Zacks Rank
FuelCell currently has a Zacks Rank #3 (Hold). The company was selected by the U.S. Department of Energy for a carbon capture project earlier this year (read: FuelCell Energy Selected for Carbon Capture Project by DOE).
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