Ballard Power gets rating and price target cut at Jennings

A rooftop installation of a Ballard ElectraGen fuel cell systems in the Philippines.

While Ballard Power (TSX:BLD, Nasdaq:BLDP) is becoming a more established company, several of its business units are still in the development stage and are inherently volatile with limited visibility, says Jennings Capital analyst Dev Bhangui.

On Tuesday, Ballard reported its Q3, 2014 results. The company lost (US) $2.4-million on revenue of $20.6-million, a topline that was up 21% over last year’s third quarter.

“Third quarter results reflect continuing progress in the business, including year-on-year improvements of 21 per cent in revenue, 15 per cent in cash operating costs, 40 per cent in cash used by operating activities, in addition to positive adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] of $500,000,” said outgoing CEO John Sheridan.

Despite the optimistic tone of Sheridan’s remarks, the company changed its revenue guidance for 2014. Management now expects its topline will grow by 20%, not the 30% it previously expected.

Bhangui says the results fell short of both his and the street consensus expectations. He says one of the culprits was order deferrals in the company’s high-margin back-up power segment. He says these are related to delays in the municipal approval of orders in New York City, where the company has conditional approval for its rooftop-based power units.

In a research update to clients this morning, Bhangui reduced his one-year target on Ballard Power to (US) $3.00, from $5.00 and changed his recommendation on the stock to HOLD from BUY.

The Jennings analyst, however, says he sees “several opportunities” for revenue growth for Ballard in areas such as new aerospace engineering services contracts, potential bus contracts in Europe, and in supplying aforementioned rooftop back-up power units to the U.S. market.