“Live by the sword, die by the sword” goes the oft-used expression. Plug Power (NASDAQ:PLUG) might find the same principle could very well apply to government financing.
Plug Power recently received a financial lifeline from the U.S. Department of Energy’s (DOE) Loan Programs Office (LPO), which last month agreed to provide the hydrogen fuel solution provider with a loan guarantee of up to $1.66 billion. This capital is intended to help fund the development of up to six hydrogen production facilities.
However, this funding could be in jeopardy following news that U.S. Senator John Barrasso has called for an investigation into the loan guarantee. The Wyoming Republican sent a letter to the Inspector General at the DOE calling into question a potential conflict of interest between the head of the LPO, Jigar Shah, and Plug Power.
As background, Shah had previously been involved in providing PLUG with a $100 million loan in his capacity at an infrastructure investment fund in 2019. Though the debt was fully repaid in 2022, Barrasso is scrutinizing the current deal under the auspices of assuring public trust and transparency.
While viewing the move as primarily a political gambit, Truist analyst Jordan Levy still believes it’s a worrying development for PLUG.
“While we view the letter as largely political posturing representing Senator Barrasso’s 5th letter regarding the LPO since October of last year, given the importance of the loan guarantee to PLUG’s overall growth strategy we see the potential for any subsequent investigation-related delays in funding adding additional risk overhang to an already higher-risk investment case,” writes the analyst.
While the loan guarantee could be rescinded, Levy is more concerned about any subsequent delays that could disrupt the timing of the funding. Any such hold-up would present a significant risk to investors “given PLUG’s relatively tenuous financial positioning/large cash burn.”
The analyst also notes that the current election year has the potential to encourage increased partisan rhetoric on clean energy-related issues. Therefore, Levy “will be closely monitoring the story moving forward due to the critical importance the loan guarantee has on PLUG’s growth plans.”
Meanwhile, Levy rates PLUG shares as a Hold (i.e. neutral), with a 12-month price target of $3.00. (To watch Levy’s track record, click here)
On Wall Street, sentiment largely aligns with Levy’s cautious stance, with TipRanks analytics reflecting a Hold consensus rating. Out of 20 analysts tracked in the last three months, 6 are bullish on Plug stock, 10 remain neutral, and 4 are bearish. Nevertheless, the consensus target price of $4.70 suggests a potential 62% gain over the next year. (See PLUG stock forecast)
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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.
