Plug Power Inc.’s (PLUG) shares have taken shareholders on a roller-coaster ride in recent years. Nearly five years earlier, the stock traded for around $1 per share when no one cared much about it. During 2020 and 2021, high investor enthusiasm led to the stock surging above $70. But it has been on a downtrend since then, currently trading under $5.
Shares of PLUG finished at $3.22 on November 10, 2023, their lowest level since April 2020. The company’s shares dived on its “going concern” warning and tax credit fight that could cause its hydrogen industry efforts to go wasted.
The stock has plunged nearly 55% over the past six months and more than 60% over the past year.
Now, let’s discuss the key factors that could impact PLUG’s performance in the near term:
Trembling Liquid Hydrogen Market
PLUG raised a “going concern” warning regarding a severely constrained liquid hydrogen market in North America. The market has been dealing with several frequent force majeure events, resulting in volume constraints, which have delayed Plug’s deployments and service margin improvements.
The hydrogen fuel-cell marker has been grappling with liquidity issues and has lost more than half of its market capitalization since the start of 2023. Plug Power’s 2023 overall financial performance has been negatively impacted by “unprecedented” supply challenges in the hydrogen network in North America.
“The company is projecting that its existing cash and available for sale and equity securities will not be sufficient to fund its operations through the next twelve months,” PLUG said.
PLUG will require additional capital to fund its operations. The company added that it was pursuing various debt capital and project-financing solutions, including corporate debt and a loan program from the U.S. Department of Energy.
Stringent Hydrogen Regulations
The hydrogen producer and fuel-cell maker’s future is heavily dependent on support from the federal government. In November 2023, PLUG was counting on what later turned out to be delayed “government support through a potential loan and clarity on hydrogen tax credits.”
The tax credit could apply to companies, including Plug Power, that use green hydrogen, which is produced by splitting water via electrolysis and could de-carbonize the shipping and heavy industry sectors.
On December 22, the White House unveiled highly anticipated strict hydrogen regulations in support of environmentalists but opposed by business and clean power industry groups.
Plug Power labeled the new rules on how hydrogen projects can qualify for a tax credit “disappointing” but also expects restrictions around a critical measure of Joe Biden’s signature climate law to get looser once the Treasury Department finalizes them.
“We do expect the regulations to loosen up,” Andy Marsh, president and chief executive officer of Plug Power, said in an interview on Bloomberg Television. “I’ve talked to many senators who tell me it will get easier — not harder.”
In order to qualify for the tax credit worth as much as $3 per kilogram, hydrogen projects would need to use electricity from newly built clean energy sources and, beginning in 2028, ensure that production occurs during the same hours as those clean sources were operating. The Biden administration is taking public comment on the requirements, which could change before being finalized.
Marsh, in his interview, said the company’s modeling showed these regulations would reduce U.S. hydrogen output by 70% by 2030. Plug and other hydrogen producers are planning an aggressive effort to “help straighten the regulations out,” he added.
According to Northland analyst Abhishek Sinha, while the policy document has nuances suggesting a possible pathway for PLUG’s plans to qualify for credits, some of its plans could come “under direct scrutiny.”
“Georgia plant could be entangled in additionality factor but PLUG believes RECs (renewable energy credits/certificates) should qualify for PTC,” Sinha added. “Although Texas plant gets power supply from wind farm, the issue for PLUG would be to meet the hourly matching requirements after 2028. NY plant gets hydro power but there is ambiguity around that too in terms of eligibility. All in all, hourly matching is the most concerning factor for PLUG.”
Deteriorating Financial Performance
For the third quarter that ended September 30, 2023, PLUG reported net revenue of $198.71 million, missing analysts’ estimate of $221.73 million. This compared to the net revenue of $157.99 million in the same quarter of 2022. The company’s gross loss widened by 199.5% year-over-year to $137.97 million.
The hydrogen producer’s operating loss came in at $273.97 million, compared to $159.75 million in the prior year’s quarter. Its loss before income taxes worsened by 70.3% year-over-year to $288.21 million. PLUG’s net loss widened by 66% from the previous year’s quarter to $283.48 million.
Plug Power posted a net loss per share of $0.47, compared to $0.30 in the same period last year. This also missed the consensus loss per share of $0.31.
Furthermore, PLUG’s cash and cash equivalents stood at $110.81 million as of September 30, 2023, compared to $690.63 million as of December 31, 2022. The company’s current assets were $2.24 billion versus $3.31 billion as of December 31, 2022.
As of September 30, 2023, the company’s current liabilities increased to $930.59 million, compared to $635.28 million as of December 31, 2022.
“This was a difficult quarter,” CEO Andy Marsh told investors during the company’s earnings call.
“Over the past several months, there have been enormous challenges associated with the availability of hydrogen, primarily due to downed plants, including our Tennessee facility, and temporary plant outages across the entire hydrogen network,” Marsh added. “Additionally, the price of these stations for hydrogen has been over $30 per kilogram at the pump, about twice the normal price.”
Mixed Analyst Estimates
Analysts expect PLUG’s revenue for the fourth quarter (ended December 2023) to grow 82.9% year-over-year to $403.75 million. However, the company is expected to report a loss per share of $0.32 for the same quarter. Also, Plug Power has missed the consensus EPS estimates in each of the trailing four quarters, which is disappointing.
For the fiscal year 2023, Street expects PLUG’s revenue and loss per share to widen 52.9% and 21.6% year-over-year to $1.07 billion and $1.52, respectively. In addition, the company’s revenue for the fiscal year 2024 is expected to increase 56.8% from the previous year to $1.68 billion.
But analysts expect the company to report a loss per share of $0.89 for the ongoing year.
Elevated Valuation
In terms of forward EV/Sales, PLUG is currently trading at 2.90x, 58.6% higher than the industry average of 1.83x. Likewise, the stock’s forward Price/Sales of 2.52x is 73.7% higher than the industry average of 1.45x.
Decelerating Profitability
PLUG’s trailing-12-month gross profit margin of negative 32.84% compared to the 30.28% industry average. Moreover, the stock’s trailing-12-month EBITDA margin and net income margin of negative 92.24% and negative 106.74% are favorably compared to the industry averages of 13.73% and 6.09%, respectively.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 24.57%, negative 11.57% and negative 17.42% compared to the respective industry averages of 12.30%, 7.05%, and 4.99%. Also, its trailing-12-month levered FCF margin of negative 158.88% compared to the industry average of 5.98%.
Rating Downgrades
PLUG’s stock has already been beaten up; however, Morgan Stanley sees more concerns for the clean energy company’s future. On December 6, Morgan Stanley analyst Arthur Sitbon downgraded Plug’s shares to Underweight from Equal Weight and slashed his price target on the stock from $3.50 to $3.
Sitbon added that Plug Power is plagued by “liquidity concerns and worsening hydrogen economics.”
Another Morgan Stanley analyst, Andrew Percoco, sees a “negative risk-reward” for PLUG shares. “Even after the underperformance in 2023, we see significant risk around PLUG’s business model given the operational challenges that the company has faced in commercializing its first few green hydrogen facilities,” Percoco said.
He added, “On paper, PLUG’s strategy makes sense to us, but we have reduced confidence in the company’s ability to execute on that strategy barring a potential dilutive capital raise and a near-perfect execution going forward.”
Analysts at JPMorgan, Oppenheimer, and RBC Capital also downgraded the stock and lowered their price targets.
“While we believe Plug Power can cycle past its current cash flow issues, the current operating and capital markets environments are challenging and we believe PLUG shares are likely to be range bound over the next several quarters until clarity around its balance sheet are sorted out,” said J.P. Morgan analyst Bill Peterson.
The analyst downgraded PLUG’s stock to Neutral from Overweight.
Bottom Lin
PLUG reported significant earnings miss in the third quarter of 2023. The hydrogen fuel cell maker’s higher-than-expected losses were hit by “unprecedented supply challenges” in the hydrogen network in North America. The company further projected its potential inability to fund its operations over the next 12 months amid supply constraints and a severe cash burn rate.
Also, the company will likely be affected by the proposed hydrogen tax rules. PLUG CEO Andy Marsh dubbed the new rules on how hydrogen projects can qualify for a tax credit “disappointing.”
Several analysts downgraded PLUG’s stock and cut their price targets, given concerns about mounting losses, funding requirements, and supply chain disruptions, which have dampened Wall Street's sentiment about the clean energy company.
Given Plug Power’s dismal financial performance, declining profitability, high cash burn rate, elevated valuation, and bleak near-term outlook, it could be wise to avoid this stock now.
