Plug Power (NASDAQ:PLUG), a global leader in providing hydrogen fuel cell solutions for various applications, has lost over 42% of its market value year-to-date. PLUG is now in cheaply-valued territory on the back of this disappointing performance.
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With analysts’ earnings estimates continuing to move lower, PLUG stock may not gather any momentum in the short term, but the company seems well-positioned to grow in the long term, creating an opportunity for long-term-oriented investors. Thus, I’m bullish on PLUG stock for the long term.
Short-Term Headwinds are Overshadowing Long-Term Prospects
Green hydrogen adoption has faced barriers this year because of rising interest rates. With the Fed continuing to pursue a restrictive monetary policy to bring inflation under control, interest rates are likely to remain at elevated levels in the foreseeable future. Funding costs, as a result, will remain elevated as well. Because of this, many businesses may be forced to pause hydrogen adoption plans, which is not good news for Plug Power.
On the other hand, Plug Power is forced to incur substantial financing costs to raise the necessary funds for its planned infrastructure projects. These projects aim to cater to the increasing demand for its products. The company’s financial performance is likely to suffer from these high financing costs in the next few quarters.
Despite short-term challenges that are primarily stemming from high interest rates, the long-term outlook for Plug Power remains promising. There are many reasons to be bullish on the prospects for the company.
First, the Cryogenics business segment is gaining traction, opening the doors for Plug Power to diversify its revenue streams. In the second quarter, the cryogenics sector reported revenue of $69 million, a three-fold increase compared to the second quarter of 2022. The company’s cryogenics solutions include liquid storage tanks, delivery trailers, vaporizers, portable equipment, and integrated control systems.
Cryogenics plays a vital role in the storage and transportation of hydrogen, which is used as a fuel source in many of Plug Power’s products. Cryogenic hydrogen storage involves liquefying hydrogen gas at extremely low temperatures, making it more dense and easier to transport and store.
Plug Power’s aggressive expansion into cryogenic technology enables the company to expand into the liquefied hydrogen business, which is likely to turn into a lucrative growth segment for the company in the future.
Second, Plug Power has been successful in forming collaborations with several global companies in the recent past, expanding into new market segments.
In May, Plug Power and South Korea’s largest private power utility company, SK E&S, entered into a joint venture to invest $746 million to build a production facility in South Korea. This hydrogen Gigafactory will commence commercial production in 2025 and aims to provide hydrogen fuel cells for vehicles and water electrolysis platforms for the Asian market. The company also has a partnership with Renault (FR:RNO), named HYVIA, which focuses on building hydrogen fuel-powered vehicles.
Third, Plug Power continues to be endorsed by key governments around the world, helping the company expand its reach. Regulatory support will play a key role in helping the adoption of hydrogen fuel cells. In the U.S., the company benefits from the provisions under the Investment Tax Credit and the Hydrogen Investment Tax Credit.
In France, the company’s joint venture with Renault has seen support from the government. In Germany, Plug Power benefits from the National Innovation Program for Hydrogen and Fuel Cell Technology, whereas in Spain, the company is actively collaborating with the government to meet its hydrogen adoption goals.
Fourth, Plug Power is securing much-needed capital to aggressively expand its production capacity. The company is currently in negotiations with the Department of Energy’s Loan Program Office for a $1 billion project financing facility. PLUG is optimistic about closing the negotiations successfully by the end of this year.
Overall, short-term headwinds have taken center stage today, overshadowing the promising long-term prospects for Plug Power, which has created a market anomaly. In an investor presentation last week, Plug Power projected revenue to reach $6 billion by 2027 and $20 billion by 2030, which would be a notable increase from the $1.2 billion in revenue the company is projected to report this year. The company’s recent investments and strategic partnerships suggest the $20 billion revenue target would not be out of its reach.
Is Plug Power a Buy, According to Wall Street Analysts?
Based on the ratings of 22 Wall Street analysts, the average Plug Power price target is $15.40, which implies upside of 120% from the current market price. Further, the stock earns a Moderate Buy rating based on 15 Buys and seven Holds assigned in the past three months.
Amid the recent market turmoil, HSBC launched coverage of Plug Power in late September with a Buy rating and assigned a price target of $11. HSBC analysts cited the expected tailwinds from the U.S. Inflation Reduction Act as the primary reasons behind this recommendation.
With many long-term tailwinds expected to drive the growth of the hydrogen fuel sector in the next decade, Plug Power seems attractively valued today, trading at a massive discount to the average price target on Wall Street.
The Takeaway: Plug Power is Too Cheap to Ignore
With renewable energy stocks feeling the wrath of rising interest rates, Plug Power stock has lost a significant amount of market value since the beginning of this year. The company, however, is well-positioned to grow in the long term, which I believe creates an opportunity that could be exploited by prudent investors.
