Establishing a clean hydrogen economy has been slower than anticipated. In its second Hydrogen Insights report of 2023, the Hydrogen Council revealed an ongoing increase in the total global investments announced for hydrogen projects. However, there was also a notable decrease in the percentage of these announcements that have progressed to committed capital, i.e., fewer projects have reached key milestones such as Final Investment Decision (FID), construction commencement, or operational status.
As noted by Seaport analyst Tom Curran, the imbalance between supply and demand in the hydrogen market has intensified. Factors such as low visibility, regulatory uncertainty, and cost apprehensions have continued to constrain demand.
With that as backdrop, what does it all mean for Plug Power (NASDAQ:PLUG), a company that has designs on thriving in the hydrogen space? “Within a more gradually developing and less policy advantageous clean H2 macro, we see balanced risk-reward at this valuation,” is the analyst’s opinion on the matter.
Accordingly, Curran has lowered his PLUG rating from Buy to Neutral without offering a fixed price target. (To watch Curran’s track record, click here)
Curran also has an idea about what the company needs to do to improve its position. Throughout the remainder of 2024, PLUG should prioritize securing essential external funding while minimizing dilution and significantly reducing its cash burn rate. “While expecting the company to survive this triage period, we think it’s far from certain that PLUG will manage to orchestrate the lowest total cost, optimal solution,” the analyst opined.
Next, the company should concentrate on reconstructing its business model and “guidance credibility.” The main objective of this effort should be to show it is making tangible advancements towards achieving profitability.
That won’t be an easy task. The Fuel division, which has been a significant financial burden for PLUG, with negative gross margins of (205%) and (276)% in 3Q23 and 2023 year-to-date, respectively, could see some relief in 2024 as three U.S. liquid hydrogen generation plants ramp up to full production. This will allow the division to replace externally procured volumes with in-house production at approximately one-third of the cost per kilogram.
However, even with the anticipated completion of the joint venture facility with Olin in LA by the end of 3Q24 (assuming no further delays), in addition to its plants in Tennessee and Georgia, the Fuel division will still only be able to fulfill 58%-52% of the Material Handling business’s required 75TPD-85TPD to meet customer demand. “Of the three plants, only GA might find a way to qualify for the IRA’s full clean H2 PTC of $3/kg under the present draft’s ADT framework, but we’ve surmised the probability is sub-50%,” Curran added.
Most on the Street agree with Curran’s thesis. Based on an additional 15 Holds, 7 Buys and 3 Sells, the stock claims a Hold consensus rating. That said, with some help from the PLUG bulls, there’s still plenty of upside projected here; the $7.64 average target suggests the shares will post growth of ~81% in the months ahead. (See PLUG stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
