The old “blood on the streets” axiom could apply to Plug Power (PLUG) right now. Throughout February and March-to-date, the stock’s ascent has hit a brick wall; first as part of the market wide pullback for the overvalued tech/growth/clean energy sector and, more specifically for PLUG, disappointing Q4 earnings. And this week, the hydrogen fuel cell maker’s stock faced another snag, following the revelation the company will need to refile its fiscal 2018–2019 financial results along with some recent quarterly statements after an audit found non-cash related errors while the company was preparing its 10-K filing.
As Warren Buffett famously said, investors should be “fearful when others are greedy, and greedy when others are fearful,” and B. Riley analyst Christopher Souther appears to have taken a leaf out of the billionaire’s playbook.
“Given our view that this news does not change the historical or future growth trajectory of the company,” the 5-star analyst said, “We believe this is another piece of accounting noise that has created an additional buying opportunity in the stock.”
PLUG’s auditor KPMG has not reported any issues related to misconduct by the company and Souther puts the errors down to the company’s leasing/PPA (power purchase agreement) business, and primarily related to its Walmart dealings.
PLUG was one of the first companies to embrace a sale-leaseback structure, and due to the highly negative gross margins, the economics of PPAs have often raised concerns and questions amongst investors.
“Management has been clear that early PPA economics on early projects were not impressive given product reliability,” Southern says, “And we note that Walmart has openly discussed this at past Plug Power Symposiums in framing the dramatic quality improvement.”
Souther also says it will be important to keep an eye out on the “size and material nature of potential write-downs and impairments,” although the analyst thinks the economics of more recent and future PPAs will “likely reflect the cost reduction improvements we’ve seen across the product segment.”
Since those early PPAs are recognized over a 5–7-year lifetime, the segment has remained “a drag on profitability.”
“To the extent there is a large impairment on those early projects,” Southern summed up, “We are likely to see a much clearer picture of recent PPAs on a go-forward basis after the impairment.”
Ok, then, but down to the nitty-gritty, what does it all mean for investors? Souther maintains a Buy on PLUG shares, backed by a $70 price target. The figure implies gains of 90% over the next 12 months. (To watch Souther’s track record, click here)
According to the rest of the Street, there’s plenty of upside, too. The average price target stands at $58.54, suggesting shares will be changing hands for a 59% premium a year from now. The analyst consensus rates this stock a Moderate Buy, based on 10 Buys, 2 Holds and 1 Sell. (See PLUG stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
