ADELIA CELLINI LINECKER. Investor's Business Daily; Los Angeles [Los Angeles]26 Apr 2021.
Plug Power, a leading maker of hydrogen fuel cells, are trying to rebound as momentum in renewable energy lifts shares. Is PLUG stock a buy right now?
Shares have stabilized after tumbling on news in March that it'll have to restate years of financial statements.
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, Walmart, Nike and Home Depot. PLUG stock went public in 2002.
Fuel cells cause a chemical reaction between hydrogen and oxygen from the air to produce electricity. Hydrogen storage systems can recharge in a matter of minutes instead of the typical several hours for lead-acid batteries.
Currently, most hydrogen comes from fossil fuels, specifically natural gas. The process of extracting it can also be powered by burning natural gas. Water is another source of hydrogen, and wind or solar energy can power the extraction process, resulting in even lower carbon emissions.
Plug Power 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.
In April, oilfield supplier Baker Hughes joined Plug Power and Chart Industries to establish a private fund that provides capital for large-scale, clean-hydrogen infrastructure projects.
PLUG Stock Technical Analysis
After losing more than half their value in the last three months, they are not in buy range nor are they currently forming any patterns. Shares are well below the 50-day line and lost support at the 200-day line April 15. But the stock popped back up above the 200-day line on April 26, as IBD reported growing interest in hydrogen among energy companies and governments.
Last week, Chevron and Toyota announced a partnership to develop hydrogen fuel cell infrastructure. Meanwhile, Biden's bold green energy plans also spurred interest in Plug stock. Biden said at last week's Leaders Summit on Climate that the new target for the U.S. is to cut its emissions by at least 50% by 2030.
The stock plunged on March 16, when the company said it was restating financial statements for fiscal 2018 and 2019. Management cited accounting errors mostly related to noncash items, including how it classified some costs.
Plug Power said it will also restate quarterly filings for 2019 and 2020. It added that no misconduct was detected.
"The revised accounting will change how the company accounts for certain transactions and items, but is not expected to impact the company's cash position, business operations or economics of commercial arrangements," Plug Power said in a statement.
The company said previously stated targets remain unchanged, including gross billings of $475 million in 2021, $750 million in 2022 and $1.7 billion in 2024.
Plug Power has until May 17 to file its 10-K form for 2020 with the SEC. The company can seek an extension to the deadline. But if it doesn't eventually return to compliance, it could face delisting.
Analyst Peter McNally, who covers industrial materials and energy at Third Bridge Group in New York, says the error raises a red flag.
"While some may view the restatement as backwards looking and simply a matter of accounting rules, Plug Power does have future targets that Third Bridge experts have questioned," he said in an email to IBD. "The company has a target of $1.7 billion in revenue in 2024, which would be multiples higher than anything achieved to date."
Plug Power's relative strength line is trending upward again after a steep decline in early April. While its RS Rating is 96 out of a possible 99, its EPS Rating is just 7. With a Composite Rating of 40, Plug is ranked No. 15 in IBD's alternative energy industry group.
Fund ownership currently stands at 42% as a growing number of funds are buying Plug Power shares. As of March 2021, 768 funds held PLUG stock, up from 566 in December 2020.
McNally said Plug Plower 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 is No. 8 in the group. Ballard Power Systems and Bloom Energy are also fuel cell stocks in the alternative energy industry group.
While Plug Power seeks to expand use of fuel cells to more vehicles, some doubt their practicality in heavy-duty vehicles like semi trucks. Tesla CEO Elon Musk has been an outspoken critic of hydrogen fuel cells, calling them unrealistic.
But others — like General Motors, Toyota and Nikola — are eager to embrace hydrogen.
Plug Power Earnings And Fundamental Analysis
Plug Power's per-share losses widened to $1.12 from 7 cents in the year-ago quarter, well below forecasts for a loss of 8 cents a share. It posted negative revenue of $316.3 million, down from a gain of $91.7 million in the year-ago quarter and worse than views for $84.9 million.
The big earnings miss was in part due to a sell-off among companies that exercised warrants they held in the stock. A stock warrant is issued directly by the company. When an investor exercises a stock warrant, the shares that fulfill the obligation are not received from another investor (as with options) but directly from the company.
Plug Power had offered warrants to key customers like Amazon and Walmart in exchange for fuel cells they bought. In Q4, Plug Power booked $456 million in costs, the majority being "noncash charges related to the accelerated vesting of a customer's remaining warrants," the company said in a statement.
As PLUG stock began soaring last fall, those warrants became more attractive to exercise. Plug Power said its customer warrant program has new been fully expensed.
Plug Power reported record gross billings last year, with $96.3 million in Q4 and $337.4 million for the full year. The company also said it's on track to deliver on 2021 and 2024 targets. In January, the company raised its outlook for 2021 to $475 million from a prior estimate of $450 million. Looking further ahead, management raised its 2024 gross billings target to $1.7 billion, up 40% from its prior outlook.
Plug Power's Partnerships
On March 30, 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.
Meanwhile, on Feb. 25, 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 joint venture should launch this year.
The partnership will provide hydrogen fuel cell systems, hydrogen fueling stations and electrolyzers to South Korea and other Asian markets.
"Plug Power has been aggressively building out the hydrogen economy in North America, and it is clear that our partner, SK Group, shares the same vision to build out a big hydrogen economy in Asia," said CEO Andy Marsh in a statement.
That deal came on the heels of its partnership with French carmaker Renault to develop, build and market electric fuel cell light commercial vehicles.
"We look for at least one additional 'pedestal' customer to be introduced (probably in Europe)," JPMorgan analyst Paul Coster said in a March 1 note. He also believes the firm will disclose a large stationary storage deployment with a data-center owner in the second quarter of 2021.
"Management has also hinted at additional JVs and partnerships that will enable PLUG to enter additional geographies and end-markets," he added.
Is PLUG Stock A Buy Now?
JPMorgan 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: PLUG stock is not a buy right now as it is trading below its 50-day line with no discernible pattern forming. Shares fell well below their 50-day moving average in late February, following the company's report of steep negative revenue.
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Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.