$PLUG- Stock Analysis And How It Is Impacted By Fuel Cells' Promising Future

About Plug Power Inc.: Plug Power Inc.($PLUG)  is focused on green hydrogen (hydrogen fuel produced using renewable resources and electrolysis) and fuel cell solutions used to power electric motors primarily in the electric mobility and stationary power markets. Plug Power created the first commercially viable market for hydrogen fuel cells. The Company has deployed over 40,000 fuel cell systems and accelerated its vertical integration through acquisitions, making it a global leader in green hydrogen solutions. Plug Power delivers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, the stationary power market, and more. In June 2020, PLUG completed the acquisitions of United Hydrogen Group Inc. and Giner elX, Inc., in line with the Company’s vertical integration strategy. These acquisitions further enhance Plug Power’s position in the hydrogen industry, with capabilities in generation, liquefaction and distribution of hydrogen fuel, complementing the Company’s industry-leading position in the design, construction, and operation of customer-facing hydrogen fueling stations. PLUG’s Growth Strategy: Plug Power expects that its green hydrogen generation plants will be among the first in North America, with plans to expand globally. The company expects to leverage its manufacturing prowess at our Rochester innovation Center to serve as Plug Power's fuel cell and electrolyzer gigafactory, driving industry scale in manufacturing. Its operating strategy objectives include decreasing product and service costs, and expanding system reliability. The company will continue to develop commercially-viable hydrogen and fuel cell product solutions to replace lead-acid batteries in electric material handling vehicles and industrial trucks for some of the world’s largest retail-distribution and manufacturing businesses. Part of the company’s long-term plan includes Plug Power penetrating the on-road vehicle market and large-scale stationary market. Plug Power’s announcements to form joint ventures with Renault in Europe and SK Group in Asia not only support this goal but are expected to provide us with a more global footprint.  Risks Related to Business and Industry  Products and performance depend largely on the availability of hydrogen gas and an insufficient supply of hydrogen could negatively affect sales and deployment of products and services. There will be a continuous dependency on certain third-party key suppliers for components in products. The failure of a supplier to develop and supply components in a timely manner could impair the company's ability to manufacture products or could increase cost of production. Plug Power depends on a concentration of anchor customers for the majority of its revenues and the loss of any of these customers would adversely affect its business, financial condition, results of operations and cash flows. Volatility in commodity prices and product shortages may adversely affect PLUG’s gross margins. PLUG Stock Competitors: Capstone Green Energy Corporation($CGRN): Capstone Green Energy Corporation develops, manufactures, markets, and services microturbine technology solutions for use in stationary distributed power generation and distribution networks applications worldwide FuelCell Energy Inc($FCEL): FuelCell Energy, Inc., together with its subsidiaries, designs, manufactures, sells, installs, operates, and services stationary fuel cell power plants for distributed baseload power generation.  Ballard Power Systems Inc.($BLDP): Ballard Power Systems Inc. engages in the design, development, manufacture, sale, and service of proton exchange membrane fuel cell products primarily in Canada. General Electric Company($GE): General Electric Company operates as a high-tech industrial company worldwide. Its Renewable Energy segment provides various solutions for its customers through combining onshore and offshore wind, blades, hydro, storage, solar, and grid solutions, as well as hybrid renewables and digital services offerings. Air Products and Chemicals, Inc.($APD):Air Products and Chemicals, Inc. provides atmospheric gases, process and specialty gases, equipment, and services worldwide. Air Products and Chemicals, Inc. has a strategic collaboration with Baker Hughes Company to develop hydrogen compression systems. Bloom Energy Cop($BE): Bloom Energy Corporation designs, manufactures, and sells solid-oxide fuel cell systems for on-site power generation in the United States, Japan, China, India, and the Republic of Korea. Hollysys Automation Technologies Ltd.($HOLI):Hollysys Automation Technologies Ltd. provides automation solutions in the People's Republic of China, Southeast Asia, India, and the Middle East. The company serves customers in the industrial, railway, subway, nuclear power, and mechanical and electronic industries.  PLUG Power Inc. Stock Price Target and Forecast Comps Analysis: P/E and EV/EBITDA PLUG had negative EBITDA and earnings in 2020, thus comps analysis on standard P/E and EV/EBITDA will not be insightful. P/S Peer analysis with comparable companies based on P/S multiple suggests that PLUG stock is overvalued. $PLUG fair value by P/S analysis ranges from $6.9 to $29.3, averaging at $14.3. EV/Sales By comparing $PLUG EV/Sales multiple to that of competitors, fair value for the Plug Power Inc stock ranges from $6.9 to $30.0, averaging at $12.5. EV/Sales By comparing $PLUG EV/Sales multiple to that of competitors, fair value for the Plug Power Inc stock ranges from $6.9 to $30.0, averaging at $12.5. Note: In the above peer evaluation, PLUG’s revenues for 2020 have been set at $306M. On December 31, 2020, the Company waived the remaining vesting conditions under the warrant that was issued to amazon.com, which resulted in a reduction to revenue of $399.7M, resulting in negative consolidated revenue of $93.2M for the year. This was a one-time effect and would not reflect the long-term fair value of $PLUG, thus the effect of this incident has been removed while doing peer valuation. DCF however reflects this scenario. DCF Analysis: Following assumptions can be made about PLUG’s projected financials based on the company’s targets, investor presentations and analyst sentiments: Assumptions for CLOV stock: Revenue Growth Rate: Revenue growth rate is expected to be high initially. PLUG’s revenue is expected to grow from $-93M in 2020 to $450M in 2021. The growth would gradually stabilise over the years. Thus revenue is assumed to grow from 45% initially to 2% in the year 2040. With perpetual growth rate at 2%. COGS: Cost of revenue is high in this industry set at 95% initially and gradually reducing to 65% over time. These ranges upto 2024 are taken from projections by PLUG and then stabilized at 65% in 2040.  Operating Efficiency Increase: Operating Expense is calculated on the basis of target Operating Income set by Plug Power Inc. The company aims to increase its operating income to 17% but we have assumed it to increase upto 14% and then upto 29% by 2040. WACC: WACC of PLUG is set to 9.5%- calculated from the data below. Taking into consideration the growth rate projected by PLUG following assumptions have been made for Asset growth rate and Liability Growth Rate for upto year 2040. Asset Growth Rate: Since PLUG’s current assets(Cash and Cash Equivalent)  grew from 1601 in 2020 to 4724 early 2021, owing to the increase in Shareholder’s equity. Plug Power Inc has enough liquidity to operate for years with its operations costing at only $300M per year. We have reduced cash and cash equivalents for PLUG upto year 2040. Liability Growth Rate: In 2021, Plug Power attained a significant growth in liability, projected to grow upto 46% by Q4 2021. Liability growth rate is assumed to be high initially, and to stabilise at 1% over the years. D/A Rate: D/A rate is taken as the average of past years at 6% and reduced to 5% over the years. PPE Growth Rate: Change in PPE is taken as a percentage of projected Depreciation and amortization. Fair Value: Based on above assumptions the fair value of $PLUG stock is $36.27. The sensitivity analysis of variation in assumptions can be checked in attachments below. Note: These assumptions are based on an ambitious target of Plug Power to have revenues worth $1.2 billion by 2024, an alternate more conservative projection values $PLUG Stock at $19.01. PLUG Stock Analysis Summary In summary, Plug Power Inc. is undervalued if it meets its target revenues and net income margin and continues to grow as projected. But if we take conservative estimates and PLUG does not grow at the projected growth rate and performs below target $PLUG Stock could plummet to $18. In this particular case we have given less weight to competitors because the competitors don’t have similar strategy, growth opportunity or product portfolio which can be a key differentiator for valuation. Based on the confidence analysts have on the management of Andy Marsh, we can make a projection that Plug Power Inc is undervalued and would reach over $28. While drawing any conclusions about PLUG it is also to be kept in mind that nearly half of Plug Power's 2019 revenues came from just two customers; thus these two customers have significant bargaining leverage and can impact the profit and revenues of the company significantly. Sources: Sec Filings Investor Presentation

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$PLUG- Stock Analysis And How It Is Impacted By Fuel Cells' Promising Future

bullish

About Plug Power Inc.:

Plug Power Inc.($PLUG)  is focused on green hydrogen (hydrogen fuel produced using renewable resources and electrolysis) and fuel cell solutions used to power electric motors primarily in the electric mobility and stationary power markets. Plug Power created the first commercially viable market for hydrogen fuel cells. The Company has deployed over 40,000 fuel cell systems and accelerated its vertical integration through acquisitions, making it a global leader in green hydrogen solutions.

Plug Power delivers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, the stationary power market, and more.

In June 2020, PLUG completed the acquisitions of United Hydrogen Group Inc. and Giner elX, Inc., in line with the Company’s vertical integration strategy. These acquisitions further enhance Plug Power’s position in the hydrogen industry, with capabilities in generation, liquefaction and distribution of hydrogen fuel, complementing the Company’s industry-leading position in the design, construction, and operation of customer-facing hydrogen fueling stations.

PLUG’s Growth Strategy:

  • Plug Power expects that its green hydrogen generation plants will be among the first in North America, with plans to expand globally.
  • The company expects to leverage its manufacturing prowess at our Rochester innovation Center to serve as Plug Power's fuel cell and electrolyzer gigafactory, driving industry scale in manufacturing.
  • Its operating strategy objectives include decreasing product and service costs, and expanding system reliability.
  • The company will continue to develop commercially-viable hydrogen and fuel cell product solutions to replace lead-acid batteries in electric material handling vehicles and industrial trucks for some of the world’s largest retail-distribution and manufacturing businesses.
  • Part of the company’s long-term plan includes Plug Power penetrating the on-road vehicle market and large-scale stationary market. Plug Power’s announcements to form joint ventures with Renault in Europe and SK Group in Asia not only support this goal but are expected to provide us with a more global footprint. 

Risks Related to Business and Industry 

  1. Products and performance depend largely on the availability of hydrogen gas and an insufficient supply of hydrogen could negatively affect sales and deployment of products and services.
  2. There will be a continuous dependency on certain third-party key suppliers for components in products. The failure of a supplier to develop and supply components in a timely manner could impair the company's ability to manufacture products or could increase cost of production.
  3. Plug Power depends on a concentration of anchor customers for the majority of its revenues and the loss of any of these customers would adversely affect its business, financial condition, results of operations and cash flows.
  4. Volatility in commodity prices and product shortages may adversely affect PLUG’s gross margins.

PLUG Stock Competitors:

  • Capstone Green Energy Corporation($CGRN): Capstone Green Energy Corporation develops, manufactures, markets, and services microturbine technology solutions for use in stationary distributed power generation and distribution networks applications worldwide
  • FuelCell Energy Inc($FCEL): FuelCell Energy, Inc., together with its subsidiaries, designs, manufactures, sells, installs, operates, and services stationary fuel cell power plants for distributed baseload power generation. 
  • Ballard Power Systems Inc.($BLDP): Ballard Power Systems Inc. engages in the design, development, manufacture, sale, and service of proton exchange membrane fuel cell products primarily in Canada.
  • General Electric Company($GE): General Electric Company operates as a high-tech industrial company worldwide. Its Renewable Energy segment provides various solutions for its customers through combining onshore and offshore wind, blades, hydro, storage, solar, and grid solutions, as well as hybrid renewables and digital services offerings.
  • Air Products and Chemicals, Inc.($APD):Air Products and Chemicals, Inc. provides atmospheric gases, process and specialty gases, equipment, and services worldwide. Air Products and Chemicals, Inc. has a strategic collaboration with Baker Hughes Company to develop hydrogen compression systems.
  • Bloom Energy Cop($BE): Bloom Energy Corporation designs, manufactures, and sells solid-oxide fuel cell systems for on-site power generation in the United States, Japan, China, India, and the Republic of Korea.
  • Hollysys Automation Technologies Ltd.($HOLI):Hollysys Automation Technologies Ltd. provides automation solutions in the People's Republic of China, Southeast Asia, India, and the Middle East. The company serves customers in the industrial, railway, subway, nuclear power, and mechanical and electronic industries. 

PLUG Power Inc. Stock Price Target and Forecast

Comps Analysis:

P/E and EV/EBITDA

PLUG had negative EBITDA and earnings in 2020, thus comps analysis on standard P/E and EV/EBITDA will not be insightful.

P/S

Peer analysis with comparable companies based on P/S multiple suggests that PLUG stock is overvalued. $PLUG fair value by P/S analysis ranges from $6.9 to $29.3, averaging at $14.3.

EV/Sales

By comparing $PLUG EV/Sales multiple to that of competitors, fair value for the Plug Power Inc stock ranges from $6.9 to $30.0, averaging at $12.5.

EV/Sales

By comparing $PLUG EV/Sales multiple to that of competitors, fair value for the Plug Power Inc stock ranges from $6.9 to $30.0, averaging at $12.5.

Note: In the above peer evaluation, PLUG’s revenues for 2020 have been set at $306M. On December 31, 2020, the Company waived the remaining vesting conditions under the warrant that was issued to amazon.com, which resulted in a reduction to revenue of $399.7M, resulting in negative consolidated revenue of $93.2M for the year. This was a one-time effect and would not reflect the long-term fair value of $PLUG, thus the effect of this incident has been removed while doing peer valuation. DCF however reflects this scenario.

DCF Analysis:

Following assumptions can be made about PLUG’s projected financials based on the company’s targets, investor presentations and analyst sentiments:

Assumptions for CLOV stock:

Revenue Growth Rate: Revenue growth rate is expected to be high initially. PLUG’s revenue is expected to grow from $-93M in 2020 to $450M in 2021. The growth would gradually stabilise over the years. Thus revenue is assumed to grow from 45% initially to 2% in the year 2040. With perpetual growth rate at 2%.

COGS: Cost of revenue is high in this industry set at 95% initially and gradually reducing to 65% over time. These ranges upto 2024 are taken from projections by PLUG and then stabilized at 65% in 2040. 

Operating Efficiency Increase: Operating Expense is calculated on the basis of target Operating Income set by Plug Power Inc. The company aims to increase its operating income to 17% but we have assumed it to increase upto 14% and then upto 29% by 2040.

WACC: WACC of PLUG is set to 9.5%- calculated from the data below.

Taking into consideration the growth rate projected by PLUG following assumptions have been made for Asset growth rate and Liability Growth Rate for upto year 2040.

Asset Growth Rate: Since PLUG’s current assets(Cash and Cash Equivalent)  grew from 1601 in 2020 to 4724 early 2021, owing to the increase in Shareholder’s equity. Plug Power Inc has enough liquidity to operate for years with its operations costing at only $300M per year. We have reduced cash and cash equivalents for PLUG upto year 2040.

Liability Growth Rate: In 2021, Plug Power attained a significant growth in liability, projected to grow upto 46% by Q4 2021. Liability growth rate is assumed to be high initially, and to stabilise at 1% over the years.

D/A Rate: D/A rate is taken as the average of past years at 6% and reduced to 5% over the years.

PPE Growth Rate: Change in PPE is taken as a percentage of projected Depreciation and amortization.

Fair Value:

Based on above assumptions the fair value of $PLUG stock is $36.27. The sensitivity analysis of variation in assumptions can be checked in attachments below.

Note: These assumptions are based on an ambitious target of Plug Power to have revenues worth $1.2 billion by 2024, an alternate more conservative projection values $PLUG Stock at $19.01.

PLUG Stock Analysis Summary

In summary, Plug Power Inc. is undervalued if it meets its target revenues and net income margin and continues to grow as projected. But if we take conservative estimates and PLUG does not grow at the projected growth rate and performs below target $PLUG Stock could plummet to $18. In this particular case we have given less weight to competitors because the competitors don’t have similar strategy, growth opportunity or product portfolio which can be a key differentiator for valuation. Based on the confidence analysts have on the management of Andy Marsh, we can make a projection that Plug Power Inc is undervalued and would reach over $28. While drawing any conclusions about PLUG it is also to be kept in mind that nearly half of Plug Power's 2019 revenues came from just two customers; thus these two customers have significant bargaining leverage and can impact the profit and revenues of the company significantly.

Sources:

Sec Filings

Investor Presentation

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