FuelCell Energy Inc (NASDAQ:FCEL) posted lower than expected financial second quarter 2014 results today that shook investors’ confidence. Earnings per share came softer than expected at ($0.03). Revenue of $38.3 million were also lower than the expectations owing to a lower average selling price and lower margin fuel cell kit and module sales in the quarter, says a June 4th research report from Stifel. The report was authored by analyst Sven Eenmaa.

FuelCell Energy logo

Eenmaa, however, remains sanguine on the company, saying that given FuelCell Energy Inc (NASDAQ:FCEL)’s “backlog levels and already achieved scale, we see the company continuing to progress toward EBITDA break-even by mid-FY15 at the latest.”

Revenue guidance achievable

Management guided revenue for between $50-$60 million for the second half of fiscal 2014, which almost coincides with the analyst expectations of $53 million for the third quarter of 2014, and $61 million for last quarter of the fiscal year, along with a double-digit margin on the back of an improving mix.

Management seems poised to achieve the targeted 30 MW of orders stated previously. Backlog increased to $371 million, including the recent United Illuminating power plant orders

Eenmaa believes that FuelCell Energy Inc (NASDAQ:FCEL)’s “contract closing conviction and bidding commentary” are encouraging, reflecting that the company is eying turnkey power plant projects with higher margins. The 5.6MW United Illuminating power plant will start earning revenue in the second half of 2014. With many orders in pipeline, analyst believe that FuelCell will require only “in a magnitude of couple 2.8MW DFC power plants in the U.S.” to meet its revenue guidance for the second half of 2014.

Margins to improve for FuelCell

The report states that margins on FuelCell Energy Inc (NASDAQ:FCEL)’s revenue will improve further in the second half as older nonprofitable projects will fade away and mix shifts toward 20%+ margin agreements. Stifel analyst have reduced revenue estimates marginally for the second half of 2014 and financial year 2015, but reiterated earlier forward EPS estimates.

According to Eenmaa, FuelCell Energy Inc (NASDAQ:FCEL) has achieved its target of reducing the manufacturing costs due to years of investments and efforts. Now, the company is transforming its stationary fuel cell power plant solution from the research and development to an economically usable renewable energy technology with a potential to become a part of the base load generation mix. The report also mentions that the unsubsidized cost of energy from FuelCell Energy’s typical 2.8MW plant has decreased around 70% over the past decade.

The Stifel analyst has a Buy rating on FuelCell Energy Inc (NASDAQ:FCEL) with a current price target of $2.90.