Coverage Initiated on 'Low-Carbon Power, High-Octane Stock'

In an Aug. 20 research note, analyst Pavel Molchanov reported that Raymond James initiated coverage, with a Market Perform Rating, on Bloom Energy Corp. (BE:NYSE), whose stock is currently trading at around $29.50 per share. This Sunnyvale, Calif.-based company provides solid oxide fuel cells for stationary power generation along with installation and maintenance services.

Molchanov described Bloom as a "differentiated technology story with [a] very pricey valuation," and "a standout leader" in the fuel cells space, which, despite a slow adoption curve due to the cost of hardware, is emerging.

Fuel cells constitute an ideal power generation method for end users and uses that need reliability, such as data centers and "mission critical applications," noted the analyst. Users are willing to pay the higher price for the ever-present baseload features. "For Bloom, the name of the game is not so much competing against other fuel cell players but, rather, boosting its own market penetration by successfully competing against the grid."

With its Energy Server product, the company already has market momentum among these end users. It sells its product on the East and West coasts of the U.S., as well as in India, South Korea and Japan.

The analyst noted that Bloom continues working, through engineering adaptations and manufacturing economies of scale, to lower its production cost. "As product cost comes down, the served addressable market is expanding commensurately," Molchanov pointed out. Sales opportunities also should increase geographically.

By 2020, Blooms aims to reduce its total production cost to $2,500 per kilowatt ($2,500/KW). This compares to its costs of more than $10,000/KW in 2016 and less than $4,000/KW today.

The company is on track to become cash flow and free cash positive this year, to be followed by non-GAAP profitability in 2019. "Bloom's revenue is set to jump by 98% in 2018. . .followed by what we anticipate will be more normalized growth of 17% in 2019 and 19% in 2020," Molchanov wrote.

Raymond James has not assigned a target price to Bloom because with a "story stock" such as this, a "one-of-a-kind pure-play on a highly differentiated emerging technology," according to Molchanov, "it is virtually meaningless to specify what the 'right' valuation ought to be."

When Molchanov wrote, "With the stock up 54% from last month's IPO, 2020E nonGAAP EPS / CFPS multiples stand at 43x / 17x – levels that, in our view, are in priced-for perfection territory, making further multiple expansion difficult to envision," Bloom shares were trading at $23.13.

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Disclosures from Raymond James, Bloom Energy Corp., August 20, 2018

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