Power Plug (PLUG), a leading maker of hydrogen fuel cells, is trying to bounce back as momentum in renewables swells stock. Is the PLUG action a buy now?
Plug Power, based in Latham, NY, supplies hydrogen fuel cells primarily to forklift trucks in large warehouses. Its fuel cells replace conventional batteries in electrically powered equipment and vehicles. Plug Power customers include retail giants amazon (AMZN), Walmart (WMT), Nike (NK) and Home Depot (HD). PLUG’s shares went public in 2002.
The company aims to produce more than half of its hydrogen energy from fully renewable sources by 2024. It also aims to branch out from forklifts to heavy-duty vehicles to service ports in the US and Europe, as well as stationary fuel cells to power data centers and distribution centers.
Plug Power currently has five pedestal customers: Amazon, HomeDepot, Walmart, Stellantis and Mercedes.
On August 25, Plug announced that it will begin sourcing liquid hydrogen from Amazon starting in 2025. Plug will supply 10,950 tonnes per year of liquid green hydrogen to fuel Amazon’s transportation and construction operations. This deal is expected to help Plug meet its revenue target of $3 billion by 2025, Plug management said in a joint statement.
Since 2016, Plug has helped Amazon deploy more than 15,000 fuel cells to replace batteries in forklifts across 70 distribution centers.
In connection with this agreement, Plug granted Amazon a guarantee to acquire up to 16 million shares of Plug common stock (secured shares). Amazon will grant the warrant in full if it spends $2.1 billion over the warrant’s seven-year term on Plug products, the statement said.
“Achieving a green hydrogen supply agreement with a customer like Amazon validates our multi-year investment and strategic expansion in green hydrogen,” said CEO Andy Marsh.
Plug already has an agreement with another of its main customers, Walmart. Has the option to deliver up to 20 tons per day of liquid green hydrogen to power material handling forklifts at Walmart’s US fulfillment and distribution centers
Walmart has worked with Plug Power to adopt and expand hydrogen fuel cells across its facilities for over a decade, starting with a pilot of 50 fleets in 2012 and expanding to a fleet of 9,500 and growing.
Recovery of clean energy stocks
As hydrogen becomes cheaper to produce, experts say it will increasingly be seen as a low-cost alternative to petroleum-based fuel and batteries. This has fueled interest in new energy stocks recently as oil prices remain high and even as investors exit growth stocks amid rising interest rates.
Additionally, on August 16, President Biden signed an expansive climate, health and tax policy. The package invests $375 billion to combat climate change, the most significant federal investment of its kind in history.
Meanwhile, Plug Power is also in growth mode elsewhere. It will build a 35-tonne-per-day green hydrogen generation plant in the Port of Antwerp-Bruges, in the heart of Europe. The company has signed a 30-year concession contract to build the plant in the Belgian port, the second largest in Europe, the company said in a statement.
Plug plans to build a 100-megawatt green hydrogen plant, using its own electrolyser and liquefaction technology, on 28 acres of land leased under the agreement. This will produce up to 12,500 tonnes per year of liquid and gaseous green hydrogen for the European market.
Construction of the plant is expected to begin in late 2023. And initial production of green hydrogen is expected in late 2024, while commissioning of the plant will be in 2025.
European and Asian partnerships
Previously, Plug’s expansion plans in Europe included a project in Denmark. Hydrogen company H2 Energy Europe on May 17 awarded Plug Power an order to deliver a one gigawatt electrolyser.
Earlier, on November 30, 2021, Plug and Spanish energy company Acciona Energia finalized their 50-50 joint venture. Formed as AccionaPlug, the joint venture is headquartered in Madrid and will develop, operate and maintain green hydrogen projects in Spain and Portugal.
Elsewhere, Plug and French automaker Renault said on June 3 that their Hyvia joint venture to make hydrogen-powered vans was in the works. The partnership plans to start building three types of fuel cell vans at Renault’s existing factories in France by the end of this year. The three models will be based on the Renault Master van platform and will 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, carbon-free hydrogen supply, as well as fleet maintenance and management.
Meanwhile, on February 25, 2021, South Korean conglomerate SK Group closed its $1.6 billion investment in a joint venture with Plug Power to expand hydrogen power in Asia. The partnership will supply hydrogen fuel cell systems, hydrogen fueling stations and electrolysers to South Korea and other Asian markets.
And on December 15, 2021, Plug Power announced an agreement with Edison Motors of South Korea to develop and commercialize a hydrogen fuel cell powered city bus in 2022. The buses will use the ProGen fuel cell system from Plug Power. The buses will be mass-produced and distributed in South Korea by the first half of 2023.
Meanwhile, Plug announced on September 14, 2021 that it is expanding operations with a European headquarters in Germany. The 70,000 square foot facility will house an innovation center with engineering labs and technical support, among other features. The unit is expected to open in early 2022.
Back in the US, Plug Power received a regulatory green light on February 7 to build a 350,000 square foot fuel cell factory in the cities of Bethlehem and New Scotland, just outside Albany, New York. Governor Kathy Hochul announced the launch of the $55 million project on March 8, 2022.
Plug Power announced on September 20, 2021 that it would open a production facility in Fresno County, California. As the largest of its kind, the plant will produce 30 metric tons of liquid green hydrogen per day. The plant will service the west coast of the US as well as Vancouver, BC, Canada. Plug expects to start the project in 2023 and open the facility in 2024.
On August 10, 2021, Plug Power said it opened its $84 million factory in Camden County, Georgia. The plant will produce 15 tonnes per day of liquid green hydrogen destined for fuel transportation applications, including material handling and fuel cell electric vehicle fleets. The factory 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 shares rose 11% on the news. The plant is expected to be online by the end of 2022.
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Electricity gains and fundamental analysis
Plug Power lost 30 cents a share and posted sales of $151.3 million, up 21% year-over-year. But the company also reaffirmed its full fiscal year sales forecast of $900 million to $925 million. FactSet analysts had expected the company to post a loss of 20 cents per share. Meanwhile, sales grew 29.4% year-over-year to $161.1 million. PLUG shares rose 17.5% despite a lack of gains on positive news from the passage of Biden’s climate law.
The PLUG stock has an EPS rating of 5 as it is not yet profitable. However, it has an Accumulation/Distribution Rating of A, indicating a strong purchase 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 rates of return on equity.
Concerns about inflation
Third Bridge analyst Peter McNally warns that cost inflation is a concern for Plug Power and the industry as a whole.
“This hurts profitability not only in current results – costs have grown faster than revenues – but also in the future as the company develops new capabilities. Plug Power’s partnership model should mitigate the impact of inflation,” he said. he.
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PLUG Stock Technical Analysis
The stock rose 8.2% to about $30 on Amazon news Aug. 25. PLUG shares are trading above their 50 and 200 day lines, according to MarketSmith.
On June 29, JP Morgan lowered its target price for PLUG shares from $32 to $28.
Plug Power’s relative strength line is trending higher. Its RS rating is 95 out of 99 best possible.
With a composite rating of 70, Plug is ranked #24 in IBD’s alternative energy industry group.
Currently, the fund’s share is 36%. As of June 2022, 1,152 funds held PLUG shares, up from 1,121 in March.
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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 advancing in diversification. 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 infrastructure and refueling for end-customer points of use.
Meanwhile, automakers General Motors (GM), Toyota (TM) and nikola (NKLA) are eager to embrace hydrogen as well.
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Is PLUG Stock a buy now?
JP Morgan estimates that the overall market opportunity could exceed $200 billion. Plug Power is raising capital to fund an ambitious construction plan and forge partnerships with key industry players.
But it still needs to prove that it can achieve profitability. Perhaps this is due to the fact that, for now, it supplies fuel cells for only 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 now as it has not formed a pattern. However, PLUG’s stock has returned to rise above their 50 and 200-day lines. In addition, Biden’s success in passing climate legislation gives impetus to clean energy actions like Plug.
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Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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