Industrial activities worldwide are experiencing a swift expansion, fueled by vigorous demand for premium quality goods and enhanced production methodologies. These factors could contribute significantly to sustaining the growth trajectory of the industrial sector in forthcoming years.
The industrial sector has suffered setbacks due to geopolitical unrest, shifting consumer preferences, and the Fed's incessant rate hikes. Despite these obstacles, the industry showcased immense resilience and is poised for potential robust recovery and strength, supported by burgeoning global demand, continuous technological innovations, and escalating investment in automation. Industrial production in the United States grew 0.7% year-over-year in June.
Exponential industrial growth in the Asia-Pacific region, particularly in countries like China, India, Japan, and South Korea, is predicted to augment the market demand for advanced and automated industrial machinery and equipment, which would inevitably contribute to the ongoing momentum within the industrial sector.
Further enhancing the sector’s progression is the technological evolution within manufacturing. Manufacturers are increasingly embracing cutting-edge technologies such as the Internet of Things (IoT), Pro-AI Thinking, and robotics, which are anticipated to enhance the efficiency and productivity of machinery, further solidifying the robust stature of the industrial sector.
Also, advantageous government regulations such as the Inflation Reduction Act, Bipartisan Infrastructure Law, and the CHIPS and Science Act are slated to provide the necessary impetus to stimulate domestic manufacturing.
The global industrial machinery market is projected to reach $1.04 trillion by 2032, growing at a CAGR of 5.3% from 2023 to 2032. Moreover, investors’ interest in the industrial sector is evident from the Industrial Select Sector SPDR Fund’s (XLI) 13.5% returns over the past year and 10% over the past three months.
In terms of price performance, ENS has gained 50.7% over the past year, whereas FCEL has plunged 57.3%. Over the past three months, ENS has gained 22.6% to close the last trading session at $103.71, while FCEL has lost 20.1% to close the last trading session at $1.91.
But which stock is a better buy now? Let’s find out.
On June 14, ENS signed a non-binding Memorandum of Understanding with Verkor SAS to explore the development of a lithium battery gigafactory in the United States. This partnership holds great potential for both companies.
The establishment of the battery gigafactory will enable ENS to streamline the size of battery cells, reducing dependency on overseas cell suppliers. This stride towards self-reliance and superior control over the supply chain underlines a significant milestone in ENS' strategy execution.
Meanwhile, FCEL is making substantial progress in recapturing its presence in the Korean market. This move is fostered by establishing strategic partnerships with domestic clean energy electric utilities having FCEL power platforms incorporated.
On July 27, FCEL entered into a long-term service agreement with Noeul Green Energy and signed an MoU with Gyeonggi Green Energy. Both agreements aim to ensure consistent fuel cell operations and promote green power generation in Korea.
Recent Financial Results
ENS’ net sales increased 9.1% year-over-year to $989.90 million in the fiscal fourth quarter that ended March 31, 2023, while its gross profit grew 26.4% from the year-ago value to $246 million. Its adjusted operating earnings improved by 60.3% from the prior-year quarter to $107.10 million.
Non-GAAP adjusted net earnings stood at $75.40 million and $1.82 per share, representing 50.5% and 51.7% improvement year-over-year. Also, the company’s adjusted EBITDA increased 34.6% year-over-year to $118.20 million.
FCEL’s total revenues stood at $38.35 million for the fiscal second quarter that ended April 30, 2023, while its gross loss came at $6.09 million. Its loss from operations grew 27.1% year-over-year to $35.86 million.
Its net loss and net loss per share attributable to common stockholders were $35.10 million and $0.09, up 13.2% and 12.5% year-over-year, respectively. Also, its adjusted EBITDA loss widened 22.9% year-over-year to $26.03 million. For the six months that ended April 30, 2023, its cash, cash equivalents, and restricted cash declined 43.4% year-over-year to $277.07 million.
Past and Expected Financial Performance
ENS’ revenue has grown at 7.5% and 5% CAGRs over the past five and 10 years, while FCEL’s revenue has grown at 6% and 0.9% CAGRs over the same periods, respectively.
For the fiscal years ending March 2024 and March 2025, ENS’ revenue is expected to increase 6.5% and 5% year-over-year to $3.95 billion and $4.15 billion, respectively. For the fiscal years 2024 and 2025, Street expects its EPS to come at $7.67 and $8.81, up 43.7% and 14.8% year-over-year, respectively.
Furthermore, ENS’ revenue and EPS for the fiscal second quarter ending September 2023 are expected to come at $963.11 million and $1.79, up 7.1% and 61.5% year-over-year, respectively. The company surpassed EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters, which is impressive.
FCEL’s revenue for the fiscal year ending October 2023 is expected to come at $132.80 million, while its EPS is expected to remain negative at $0.30. For the fiscal fourth quarter ending October 2023, FCEL’s revenue is expected to decline 26.1% year-over-year to $28.96 million.
Its EPS for the same quarter is expected to remain at negative $0.08. Moreover, FCEL failed to surpass consensus EPS estimates in three of the trailing four quarters, which is disappointing.
ENS’ trailing-12-month gross profit and net income margins are 22.69% and 4.74% compared to FCEL’s negative 10.80% and 79.13%, respectively. Also, ENS’ levered FCF margin of 6.03% is relatively higher than FCEL’s negative 80.91%.
Moreover, ENS’ ROCE, ROTC, and ROTA of 11.38%, 6.58%, and 6.80% compare with FCEL’s negative 17.19%, 9.42%, and 13.93%, respectively.
Thus, ENS is more profitable.
In terms of forward EV/Sales, ENS is currently trading at 1.30x, 72.6% lower than FCEL, which is trading at 4.74x. Moreover, ENS’ forward Price/Sales of 1.09x is 81.5% lower than FCEL’s 5.89x.
ENS has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. On the other hand, FCEL has an overall rating of F, which translates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
ENS has a B grade for Quality, justified by its higher-than-industry profitability. ENS’ trailing-12-month levered FCF margin and asset turnover ratio of 6.03% and 1.01x are 14.9% and 26.6% higher than the industry averages of 5.25% and 0.80x, respectively.
FCEL’s Quality grade of F is consistent with its weak profitability. FCEL’s trailing-12-month levered FCF margin of negative 80.91% compared to the industry average of 5.25%. Likewise, its trailing-12-month asset turnover ratio of 0.17x is 78.1% lower than the industry average of 0.80x.
ENS has a B grade for Value, in sync with its lower-than-industry valuation. In terms of forward EV/Sales and Price/Sales, ENS is trading at 1.30x and 1.09x, 28.8% and 23.5% lower than the industry averages of 1.82x and 1.42x, respectively.
Conversely, FCEL’s F grade for Value is justified by its stretched valuation. FCEL’s forward EV/Sales and Price/Sales multiples of 4.74 and 5.89 are 160.5% and 314% higher than the industry averages of 1.82 and 1.42, respectively.
Furthermore, ENS’ Sentiment grade of A is in sync with favorable analyst estimates, while FCEL’s Sentiment grade of F is evident from its poor analyst estimates.
Within the B-rated Industrial – Equipment industry, ENS is ranked first, while FCEL is ranked #88 out of 92 stocks.
The industrial equipment sector is projected to stay resilient, buoyed by robust demand for advanced and automated machinery to optimize production processes. This surge in demand propels appealing opportunities for industry participants ENS and FCEL, both of which are well-positioned to reap benefits from the ongoing expansion.
However, given ENS’ strong profitability scenario, cheaper valuation, and promising bottom-line estimates, it could be a better choice now.
Further strengthening this standpoint is that, on June 30, 2023, ENS paid its shareholders a quarterly dividend of $0.175 per share of common stock. Its annualized dividend rate of $0.70 per share yields 0.67% on prevailing prices. ENS’ four-year average dividend yield is 0.95%.
Moreover, during fiscal 2023, the company repurchased 358,365 shares of common stock for approximately $22.9 million.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial – Equipment industry here.
What To Do Next?
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ENS shares were unchanged in premarket trading Wednesday. Year-to-date, ENS has gained 40.99%, versus a 18.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.FuelCell Energy (FCEL) vs. EnerSys (ENS): Which Stock Is the Better Buy? appeared first on StockNews.com