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Plug Power (PLUG), a leading maker of hydrogen fuel cells, is trying to rebound as momentum in renewable energy lifts shares. Is PLUG stock a buy right now?
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Latham, N.Y.-based Plug Power supplies hydrogen fuel cells mainly for forklifts in large warehouses. Its fuel cells replace conventional batteries in equipment and vehicles powered by electricity. Plug Power clients include retail giants Amazon (AMZN), Walmart (WMT), Nike (NKE) and Home Depot (HD). PLUG stock went public in 2002.
The company aims to produce more than half of its hydrogen energy from entirely renewable sources by 2024. It also aims to branch out from forklifts to heavy-duty vehicles to serve ports in the U.S. and Europe, as well as stationary fuel cells to power data centers and distribution hubs.
Plug Power has five pedestal customers: Amazon, HomeDepot, Walmart, Stellantis and Mercedes.
Belgium Plant
Plug Power will build a 35-tons-per-day green hydrogen generation plant at Port of Antwerp-Bruges in the heart of Europe. It signed a 30-year concession agreement to build the plant at the Belgian port, the second largest in Europe, the company said in a statement.
Plug plans to erect a 100-megawatt green hydrogen plant, using its own electrolyzer and liquefaction technology, on 28 acres of land leased under the agreement. It will produce up to 12,500 tons per year of liquid and gaseous green hydrogen for the European market.
Construction of the plant is expected to begin in late 2023. Initial production of green hydrogen is expected in late 2024, and plant commissioning will be in 2025.
European Expansion
Plug’s previous expansion plans in Europe includes a Denmark project. On May 17, Plug said it had been awarded an order to deliver a one gigawatt electrolyzer to hydrogen company H2 Energy Europe. Planned for a green hydrogen production complex in Denmark.
On Nov. 30, 2021, Plug and Spanish energy firm Acciona Energia finalized their 50-50 joint-venture. Incorporated as AccionaPlug, the joint-venture is headquartered in Madrid and will develop, operate, and maintain green hydrogen projects throughout Spain and Portugal.
On July 14, 2021, Plug Power announced it was partnering with Charlottesville, Va.-based Apex Clean Energy in a 345 MW wind power purchase agreement and a development plan to open a green hydrogen production facility. Terms of the deal were not disclosed.
On June 3, Plug and French carmaker Renault said their Hyvia joint venture to make hydrogen-powered vans was under way. The partnership plans to begin building three types of fuel-cell vans at existing Renault plants in France by the end of this year. The three models will be based on the Renault Master platform of vans and use the same electric motors that now power the all-electric version of the Master.
The project also includes the installation of hydrogen charging stations across Europe, supply of carbon-free hydrogen as well as maintenance and management of fleets.
In April, oilfield supplier Baker Hughes (BHI) joined Plug Power and Chart Industries to establish a private fund that provides capital for large-scale, clean-hydrogen infrastructure projects.
Meanwhile, on Feb. 25, 2021, South Korean conglomerate SK Group closed its $1.6 billion investment into a joint venture with Plug Power to expand hydrogen energy in Asia.
The partnership will provide hydrogen fuel cell systems, hydrogen fueling stations and electrolyzers to South Korea and other Asian markets.
Walmart Deal
On April 19, Plug Power announced an agreement with Walmart for an option to deliver up to 20 tons per day of liquid green hydrogen to power material handling lift trucks across Walmart distribution and fulfillment centers in the U.S.
This is one of the first green hydrogen supply contracts for Plug Power, the company said in a statement.
Walmart has worked with Plug Power to adopt and expand hydrogen fuel cells throughout its facilities for over a decade, beginning with a 50-fleet pilot in 2012 and expanding to a fleet of 9,500 and growing.
Clean-Energy Stocks Rebound Amid Oil Price Spike
As hydrogen becomes cheaper to make, experts say it will increasingly be seen as a low-cost alternative to petroleum-based fuel and batteries. That’s fueled interest in new energy stocks in recent weeks, as oil prices soar and even as investors rotate out of growth stocks amid rising interest rates.
Still, roadblocks remain. For example, states that have until recently been huge supporters of clean-energy subsidies, like California, appear to be mulling incentives reductions.
Additionally, President Biden’s stalled “Build Back Better” plan bodes ill for clean energy investments. On July 15, Sen. Joe Manchin revealed he would not vote in favor of an economic package that included new spending on clean-energy programs.
Finally, on Feb. 24, CFRA Research analyst Richard Wolfe lowered his price target for PLUG stock to $23 a share from $35, citing continued margin pressure in Q4 from global supply chain challenges and higher hydrogen costs.
That said, Wolfe adds that he believes investors will be more interested in how “the company plans to expand medium-term margins, progress toward green hydrogen production goals, and the order backdrop for electrolyzers.”
Plug Power’s Partnerships
However, Plug appears focused on forging partnerships. On Dec. 15, 2021, Plug Power announced an agreement with South Korea’s Edison Motors to develop and market a hydrogen fuel cell-powered electric city bus in 2022. The buses will use Plug Power’s ProGen fuel-cell system. The buses will be mass produced and distributed in South Korea by the first half of 2023.
On Dec. 14, 2021, Plug Power announced it will provide Certarus with up to 10 tons of green hydrogen per day to Certarus. Initial deliveries expected in Q1 2022.
Certarus’ integrated logistics platform and fleet of compressed gas delivery trailers will move hydrogen directly from production locations to Plug Power’s and Certarus’ end users.
End users include leading mining, power generation, natural gas mid-stream and industrial energy users.
Expanding Footprint
Back in the U.S., Plug Power got a regulatory green light on Feb. 7 to build a 350,000-square-foot fuel-cell factory in the towns of Bethlehem and New Scotland, outside Albany in upstate New York. Governor Kathy Hochul announced the groundbreaking of the $55 million project on March 8, 2022.
Plug Power announced on Sept. 20, 2021, it would open a production facility in Fresno County, Calif. As the largest of its kind, the plant will produce 30 metric tons of liquid green hydrogen per day. The plant will serve the West Coast of the U.S., as well as Vancouver, B.C., in Canada. Plug expects to break ground for the project in 2023 and open the facility in 2024.
Plug announced on Sept. 14, 2021, that it’s expanding operations with a European headquarters in Germany. The 70,000-square foot facility will house an innovation center with engineering labs and technical supports, among other features. The facility is expected to open at the start of 2022.
On Aug. 10, 2021, Plug Power said it broke ground on its $84 million plant in Camden County, Georgia. The plant will produce 15 tons per day of liquid green hydrogen intended to fuel transportation applications, including material handling and fuel cell electric vehicle fleets. The plant is expected to open in 2022.
On March 30, 2021, Plug Power said it planned to open a green hydrogen production plant in south-central Pennsylvania with Brookfield Renewable Partners. PLUG stock jumped 11% on the news. Construction is slated for the first quarter of 2022. The plant is expected to be online by late 2022.
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Plug Power Earnings And Fundamental Analysis
Plug reported a Q1 loss of 27 cents a share, lower than expectations for a 16-cent loss. Revenue rose 96% to $140.8 million, but it also missed forecasts for $144.8 million.
The stock sank 14.3% on Monday, during a stock market selloff. Plug Power shares have declined 42% so far in 2022.
Management blamed rising natural gas prices, which affected its margins in its fuel business.
PLUG stock has an EPS Rating of 18, as it is not yet profitable. It has a B+ Accumulation/Distribution Rating, indicating a moderate amount of buying of its shares among institutional investors.
Plug Power’s SMR Rating of D indicates that it outperforms 20% to 40% of other stocks.
The A-to-E rating identifies companies with superior sales growth, profit margins and return on equity ratios.
Inflation Concerns
However, Third Bridge analyst Peter McNally cautions that cost inflation is a concern for Plug Power and the industry as a whole.
“This is a drag on profitability not just in the current results — costs grew faster than revenues — but also in the future as the company builds out new capabilities. Plug Power’s partnership model should mitigate the impact of inflation,” he said.
On July 23, 2021, Citigroup initiated coverage on Plug with a Buy rating and a price target of $35. Analyst P.J. Juvekar said Plug Power is “leading the way” in the nascent hydrogen economy, which is “at the cusp of a breakout.”
Earlier, the company said it was teaming up with Fortescue Future Industries in a 50-50 joint venture to build a gigafactory in Australia.
Additionally, it entered an agreement to buy liquified hydrogen transportation company Cryo Technologies. Crpo is a leading provider of technology, equipment and services for the transportation, storage and distribution of liquified hydrogen and other cryogenic gases.
And it confirmed plans to generate 500 tons per day of liquid green hydrogen by the end of 2025, which will include installing 13 green hydrogen plants by the end of 2025. Plug Power projected ambitious electrolyzer sales of over 100 megawatts by 2022, which will generate 50 tons per day of green hydrogen.
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PLUG Stock Technical Analysis
Shares popped 6% to around $27 on the Walmart deal news on April 19. But the stock has tumbled to around $16, well below its 52-week high of 46,50.
On June 29, J.P. Morgan cut its target price for PLUG stock to $28 from $32.
Plug Power’s relative strength line is trending lower. Its RS Rating is 22 out of a best-possible 99.
With a Composite Rating of 33, Plug is ranked No. 20 in IBD’s alternative energy industry group.
Fund ownership currently stands at 34%. As of March 2022, 1,117 funds held PLUG stock, up from 1,095 in December 2021.
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Growing Competition
McNally said Plug Power is effectively dependent on two customers, which makes the company’s situation fragile. “In addition, Plug Power is not the only company in this space that has been able to raise capital, so we expect stronger competition in the years to come,” he said.
Rival FuelCell Energy (FCEL) and Ballard Power Systems and Bloom Energy (BE) are also fuel cell stocks in the alternative energy industry group.
Plug Power is making strides to diversify. On April 29, Plug Power announced a plan to integrate its ProGen fuel cell engines into BAE Systems’ electric buses. The two companies will also work on developing hydrogen and refueling infrastructure to end-customers use points.
Meanwhile, automakers General Motors (GM), Toyota (TM) and Nikola (NKLA) are eager to embrace hydrogen too.
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Is PLUG Stock A Buy Now?
J.P. Morgan estimates the overall market opportunity could exceed $200 billion. Plug Power is raising capital to finance an ambitious buildout plan and forging partnerships with key industry players.
But it has yet to prove that it can achieve profitability. This is perhaps due to the fact that for now it supplies fuel cells for just one vehicle — forklifts. While it has plans to manufacture hydrogen fuel cells for other industries, a wait-and-see approach is probably more prudent.
Bottom line: The stock is not a buy right now as it’s trading below both its 50-day and 200-day lines.
Check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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