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Ballard Power Systems: A Solid Buy Going Into Earnings


·Ballard Power Systems' products are gaining traction across the globe.
·Ballard is partnering with a number of companies, with Plug Power being the most prominent, as it will help it profit from customers like Wal-Mart and Volkswagen.
·Ballard is expected to see solid growth in earnings, which means that it should be able to sustain its impressive run.

Fuel cell player Ballard Power Systems (NASDAQ:BLDP) had disappointed investors when it released its first-quarter results. However, the company has gained some solid momentum in the last one month, with shares up 7%. Overall, Ballard shares are up a whopping 184% so far in 2014, and the short-term hiccup was on account of a slight slowdown in its business.

Gaining traction across the globe

Ballard Power Systems looks set to soar, as it is on track to benefit from opportunity in the fuel cell market, which is estimated to grow at a CAGR of 22% till 2020. In addition, Ballard is a supplier to Plug Power (NASDAQ:PLUG), which is striking deals with the likes of Volkswagen (OTCQX:VLKAY) and Wal-Mart (NYSE:WMT) to supply its fuel cell-based products.

Ballard is well-positioned to grow its business going forward. The company is already seeing considerable growth in material handling. During the first quarter, the company bagged a four-year contract from Volkswagen, which boosted its engineering services revenue considerably. It is also seeing solid growth in its IP licensing business, driven by the multi-year agreement that the company signed for bus module assembly in China.

In addition, Ballard expects its Telecom Backup segment to get better once again, after dropping 55% on a year-over-year basis in the previous quarter. Telecom Backup Power demand is mainly driven by two different catalysts. The first is targeted at markets with unreliable power grids, and the second is targeted at markets requiring network hardening for crisis situations. Ballard is currently working on two customer engagements for both applications.

The first is in East Timor, which is a market with an unreliable grid. East Timor is a 5,400-square mile independent state on the Indonesian Island of Timor, where the company has supported its channel partner, Cascadiant, in providing methanol-fueled ElectraGen systems. These systems are being used as the only source of backup power at base station sites in the telecom network.

The second proposition includes network hardening, which can be seen in Germany. Ballard is supporting FutureE, which has bagged a contract to deploy more than 50 backup power systems using Ballard's fuel cell stacks at critical sites in Germany's emergency services network, also known as BOS. Going forward, FutureE cites greater opportunities for deployments in the BOS network.

Ballard remains optimistic about its growth going forward. According to management, "Our biggest sales pipeline opportunities are in Southeast Asia and India, where unreliable power grids predominate, and in the U.S., where network hardening activity is underway." The company currently has a strong market in Japan, Indonesia, the Philippines, and South Africa. In addition, it is expanding into new locations, such as Pakistan, Australia, Myanmar, and China.

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