FuelCell Energy Inc (NASDAQ:FCEL) shares jumped 4.41% yesterday to close at $2.37 and went up another 1.27% in pre-market trading Thursday to $2.40. The big jump came after Cowen analysts Jeffrey Osborne and Thomas Boyes upgraded the stock from Market Perform to Outperform with $3 price target. The price target reflects about 30% upside potential in the stock.

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FuelCell has reduced its manufacturing cost by 70% over the past decade

Cowen analysts were impressed with FuelCell Energy’s success in transforming its hydrogen fuel cell power plants into a mainstream technology. Analysts said that the company has reduced its manufacturing costs and cost of energy significantly over the past few years through investments and targeted efforts. The unsubsidized cost of energy for its typical 2.8MW plant has fallen to $0.13/kWh. Including the state-level incentives and benefits from Investment Tax Credit (ITC), the cost comes down to $0.09-$0.11/kWh range.

FuelCell has reduced its manufacturing cost by 70% over the last 10 years. Falling costs have made it attractive relative to many states’ baseload pricing, said analysts. Fuel cell power plant are a new technology for governments, regulators and financiers in many countries including in the U.S. So, there is a lengthy learning curve for these stakeholders, making approval processes tedious. However, Cowen expects fuel cell power plant technology penetration to increase over time.

FuelCell to become EBITDA positive by mid-2015

Osborne and Boyes forecast FuelCell to become EBITDA positive by mid-2015, largely due to rising production levels and cost improvements. Cowen said the forthcoming orders with Long Island Power Authority and NRG Energy Inc (NYSE:NRG) will show investors how FuelCell would become profitable by next year.

Last month, NRG Energy invested $35 million in FuelCell by purchasing 14.6 million shares at $2.39 per share. Terms of the deal allow NRG to buy another two million shares of FuelCell at $3.35 apiece over the next three years. What’s more, NRG also issued a $40 million loan to help FuelCell Energy complete several projects.

NRG Energy has now become the second-largest shareholder in FuelCell with 6% stake. Posco Energy owns 11.84% of the Danbury-based company.