According to a recent analysis by Morgan Stanley, Bloom Energy has several promising tailwinds ahead. The bank has reconfirmed its overweight rating on the stock and named it a top pick. With a price target of $29, the bank suggests that the shares could potentially surge by 92% from their closing price on Tuesday. Analyst Andrew Percoco emphasized that Bloom Energy stands as the top pick in the clean tech sector and is poised to benefit from several key themes.
One of the factors driving Bloom Energy’s positive outlook is the increasing value proposition of on-site electrical generation, also known as distributed energy. Percoco highlights that the fuel cell maker will be further boosted by rising grid instability and grid capacity limitations. As more businesses and individuals look for reliable and sustainable energy solutions, the demand for Bloom Energy’s fuel cell technology is expected to grow.
Percoco predicts that Bloom Energy’s ability to consistently reduce its product costs by 10%-15% annually, coupled with the growing demand for its fuel cell technology, will drive meaningful margin expansion. He projects a significant margin expansion of 751 basis points between 2022 and 2025, leading to the generation of free cash flow in 2024 and 2025. However, Percoco believes that the current valuation does not reflect these potential developments.
Analyzing the enterprise value-to-sales numbers for 2025, Percoco notes that Bloom Energy’s shares are trading at a 37% discount relative to its hydrogen peers. This suggests that the stock is undervalued, considering the potential growth and revenue opportunities in the clean tech sector. Percoco believes that if Bloom Energy can tap into the anticipated “explosive growth” while maintaining consistent cost-cutting measures and addressing the rising electric bills, the shares could surge by over 75% in the bull case scenario.
In addition to the aforementioned factors, Percoco cites the clean hydrogen tax credit from the Inflation Reduction Act as another potential catalyst. He suggests that this tax credit can positively impact consensus revenue expectations for Bloom Energy from 2025 to 2030. By tapping into this opportunity, Bloom Energy could further enhance its growth potential and drive additional value for its shareholders.
As Bloom Energy continues to position itself at the forefront of clean tech innovation, the company stands to benefit from various tailwinds. With the growing value proposition of on-site electrical generation, potential margin expansion, and a discounted valuation relative to its hydrogen peers, Bloom Energy appears well-positioned for future growth. Additionally, the clean hydrogen tax credit presents an additional opportunity for the company to drive revenue and further enhance its performance. As investors weigh the potential for consistent cost-cutting and a rise in electric bills, the future outlook for Bloom Energy looks promising.