As the Biden administration winds down, the U.S. Department of the Treasury and the IRS have enacted final rules for the clean hydrogen production tax credit under Section 45V of the Inflation Reduction Act. This is expected to impact companies like Plug Power (PLUG), causing the shares to jump roughly 40% on the news. The amended regulations aim to spur progress in the clean hydrogen industry by providing clarity and flexibility for participants, including those engaged in the Department of Energy’s regional hubs project.
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Clean hydrogen has the potential to become a pivotal energy source if it can be produced at an efficient and affordable rate. Its versatility can be used to fuel vehicles and substitute natural gas in industrial areas, contributing significantly to decarbonization efforts. Currently, most hydrogen is produced through natural gas, which, unfortunately, releases substantial amounts of carbon. The new laws presented by the Biden administration could enable businesses to become eligible for tax benefits if they successfully capture and store the carbon produced during hydrogen creation or employ clean electricity for production.
This clean electricity could be sourced from wind, solar power, or, in some instances, nuclear means. The rules should facilitate clean hydrogen production by capturing and storing carbon emissions or using renewable electricity.
Capitalizing on a Hydrogen Ecosystem
Plug Power is advancing its green hydrogen ecosystem, focusing on hydrogen fuel cell technology, boasting 69,000 fuel cell systems and 250 fueling stations in operation. The company also stands as the largest buyer of liquid hydrogen and envisions a green hydrogen highway across North America and Europe, backed by a Gigafactory’s production capabilities. Additional operations include green hydrogen production plants, projected to be commercially operational by 2028.
Plug Power has capitalized on its internal network of hydrogen plants to enhance hydrogen fuel margins. Its Olin Corporation joint venture hydrogen plant in Louisiana is gearing up for a significant liquid production ramp-up in Q1 2025. Additionally, it continues to grow its Basic Engineer and Design Package (BEDP) contracts, achieving an overall 8 GW globally.
Accelerating Revenue, Decelerating Losses
The company’s Q3 2024 financial performance report shows revenue of $173.7 million, primarily driven by an increase in electrolyzer deployments, the expansion of its internal hydrogen network, and an enlarged manufacturing footprint. The firm’s operating cash flows witnessed a 31% increase compared to the previous quarter, thanks to better leverage of current inventory and fixed manufacturing costs.
Nevertheless, the company reported a net loss of $211.2 million in Q3, which, while high, indicates a reduction from the Q2 loss of $262.3 million. The earnings per share (EPS) loss also showed a positive trend, decreasing to -$0.25 from Q2’s -$0.36.
Regarding guidance for the entire year, management expects 2024 revenue to be $700 million to $800 million. This revenue growth is attributed to an expected surge in orders for their electrolyzer, cryogenic, and material handling businesses in the second half of 2024.
Caution Is Warranted
PLUG is a stock with significant volatility, posting a beta of 2.91 during periods of striking growth and dramatic losses. Overall, the stock is down 87% over the past three years. It trades near the middle of its 52-week price range of $1.60 – $5.14, yet the recent positive momentum in share price has it bullishly trading above major moving averages.
Analysts following the company have taken a cautious stance on the stock. For instance, RBC Capital’s Chris Dendrinos, a four-star analyst according to Tipranks’ ratings, recently provided updated 45V guidance, which he notes is an incremental positive for the electrolytic hydrogen industry and for Plug Power. He reiterated a Sector Perform rating and a $2 price target for Plug Power.
Plug Power is rated a Hold overall based on the recommendations of 18 analysts. Their average price target for PLUG stock over the next 12 months is $2.91, which represents a potential downside of -7.62% from current levels.
PLUG in Summary
Plug Power operates with a high-risk, high-reward business model, indicating its potential for both sizable gains and substantial downsides. Recent rulings in Washington, D.C., have fostered optimism among investors. Yet, it will likely continue to be volatile, so potential investors may want to closely monitor the company’s key financial indicators to make informed decisions.
