Bloom Energy, a fuel cell maker, has received positive evaluations from Morgan Stanley. The bank designated the stock as a top pick, reaffirming its overweight rating on the shares. Morgan Stanley also maintained a price target of $29, suggesting that the stock could potentially surge by 92% from its Tuesday closing price. Analyst Andrew Percoco underscores several key factors that position Bloom Energy for success in the clean tech sector.
Percoco highlights the increasing value of on-site electrical generation, also known as distributed energy, as a major catalyst for Bloom Energy’s growth. With rising grid instability and grid capacity limitations, the demand for the company’s fuel cell technology is expected to rise significantly. As a result, Bloom Energy is likely to experience meaningful margin expansion and generate substantial free cash flow in 2024 and 2025.
Percoco argues that Bloom Energy’s stock is currently undervalued. The company’s ability to consistently reduce product costs by 10%-15% per year, coupled with the growing demand for its fuel cell technology, is predicted to drive significant margin expansion. Moreover, Percoco calculates that the stock is trading at a 37% discount relative to its hydrogen peers based on projected enterprise value-to-sales numbers for 2025.
Upcoming Catalysts
In addition to the optimistic outlook for Bloom Energy, Percoco identifies two upcoming catalysts that could fuel the company’s growth further. The first catalyst is the clean hydrogen tax credit provided by the Inflation Reduction Act. Percoco anticipates that this tax credit will contribute to consensus revenue expectations from 2025 to 2030. The second catalyst lies in the potential for “explosive growth” in the wake of consistent cost-cutting efforts and a rise in electric bills. If Bloom Energy successfully taps into this growth, share prices could surge by more than 75% in the bull case scenario.
Market Performance
Despite the positive outlook, Bloom Energy’s stock has experienced a decline of 21% in 2023. However, the stock showed signs of recovery, with a 1.5% increase in premarket trading on Wednesday.
Bloom Energy is poised for a promising future according to Morgan Stanley. The company’s focus on distributed energy, coupled with its ability to lower product costs and the anticipated catalysts such as the clean hydrogen tax credit, position Bloom Energy as a top pick in the clean tech sector. With the potential to generate significant margin expansion and free cash flow, the stock is seen as undervalued by Morgan Stanley. Although the stock has faced challenges in the market, recent signs of recovery suggest that Bloom Energy could be on the path to capturing even greater market share in the coming years.
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