Company Description

Plug Power Inc. (NASDAQ: PLUG) founded in 1997 and headquartered in Latham, New York, is a clean energy company focused on designing, developing, manufacturing and commercializing hydrogen fuel cell systems. The company also has facilities in Spokane, Washington and Boulogne-Billancourt, France

Plug Power’s primary focus has been in the materials handling market, specifically electric forklifts and pallet jacks.  It is now broadening its scope and focusing on electric vehicles and other industrial applications. The company offers an array of products for all phases of the energy consumption process including hydrogen fuel cell engines, hydrogen fuel cell systems, fueling delivery systems, stationary back up fuel cells, and maintenance services.

Notable customers include Nike, BMW, Wal-Mart, Home Depot, Mercedes-Benz, Kroger, and Whole Foods, and Amazon. The company was founded in 1997 as a joint venture between DTE Energy and Mechanical Technology and subsequently went public in 2002.

Products and Services

Hydrogen fuel cells have several advantages over typical lead-acid batteries.  They are more reliable and can withstand more extreme temperatures and rugged environments. Other benefits include:

• Significantly shorter recharge times;
• Ability to hold more energy;
• Reduced greenhouse emissions;
• Fewer replacements; and
• Less costly to dispose of since materials are less hazardous.

Product Catalogue:

• ProGen: Hydrogen fuel engine that is used as a component for the GenDrive and GenSure. It enhances the electric range (duration) and has a wide range of transportation applications. ProGen is generally sold as a component within Plug Power’s other products, but can also be sold standalone (provided ProGen engines to Fedex).
• GenDrive: Hydrogen Fueled Proton Exchange Membrane (PEM) fuel cell system used to power material handling vehicles.
• GenFuel: A delivery system to provide refueling to Plug Power products.
• GenSure (formerly ReliOn): Stationary fuel cell that provides back up power, grid supplementation, and off grid power.
• GenCare: A maintenance program for Plug Power products. This includes advanced system monitoring, preventative maintenance, periodic system enhancements, parts inventory logs, training, and rapid response onsite services.

All products integrate together to create a complete solution: GenKey. It is a solution for customers transitioning their material handling vehicles or stationary power applications from typical lead batteries to hydrogen fuel cell power. GenKey solution includes GenFuel, GenCare, and GenDrive or GenSure.

 

Recent Developments

Traders News Source previously wrote about Plug Power in April after the company announced a new multi-year dear with Amazon, which introduced hydrogen fuel cell technology to 11 distribution warehouses, with additional facilities to be added later. A few months later, the company announced that it had expanded its partnership with Wal-Mart, deploying hydrogen fueling stations and fuel cell technology to 30 additional Wal-Mart sites over the next three years.  Plug Power also obtained additional balance sheet flexibility by increasing its loan facility from $25 million to $45 million.

On October 31, 2017, the company disclosed a new agreement with Toyota Material Handling Norway to provide hydrogen fuel cell technology to Asko, a Norwegian grocery wholesaler. Asko will incorporate GenDrive fuel cells into its fleet of industrial forklifts at the company’s distribution center in Trondheim, Norway, with the possibility of converting all 95 trucks to fuel cells. The Trondheim facility is serving as a pilot project, and if successful Asko may deploy hydrogen fuel cells at its 13 regional warehouses. Hydrogen will be produced onsite via electrolysis technology provided by NEL ASA. The new fleet will likely be deployed in the fourth quarter of this year.

This deal allows Plug Power to gain an additional foothold in Europe, and shows that it can deliver productivity enhancing solutions for its clients. Furthermore, it demonstrates that it can help its customers (particularly in Europe) meet their energy and sustainability goals. For instance, Asko has pledged to reduce energy consumption by 20 percent and convert to 100 percent renewable fuel by 2020. In support of these goals, Plug Power presented with Asko and Toyota at the Zero Emission Conference, one of the largest and longest running climate solutions conferences in Europe.

Third Quarter Earnings Preview

Results for the third quarter will be a critical indicator of whether management is finally delivering on the profitability front. Plug Power was originally supposed to reach positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2015, but has yet to do so.

 

As noted in our prior report, the company affirmed earlier full-year guidance for 2017:

 

• Total GAAP Revenue of $130 million;
• GAAP Gross Margin of 8% to 12%;
• Bookings of $325 million; and
• $25 to $35 million of net cash used in operating and investing activities.

 

Given the company’s first half results, the second half is expected to be significantly stronger. First half revenue totaled $36.0 million, with an adjusted gross margin of negative $8.0 million (negative 22 percent) and free cash flow totaling negative $75.4 million. This suggests that the second half of 2017 will yield revenue of $94.0 million, adjusted gross margin of $18.4 million to $23.6 million (20 – 25 percent).

While significantly better than recent figures, the implied second half results are not entirely unrealistic. On the second quarter earnings call, management was confident that the largest headwinds had passed, and that the company would begin to see a return on earlier investments.

As detailed in our first report, the Amazon deal alone will generate $70 million in 2017, and most of that will be realized in the third and fourth quarter. The company may also book additional revenue from the recently expanded deal with Wal-Mart. However, investors should prepare for the possibility of another quarter of mediocre results, as the vast majority of revenue (including the Asko deal) could be pushed to the fourth quarter.

Other items to watch for include cash reserves, the company’s burn rate, and the number of shares outstanding, which has risen steadily in the past few years.

 

Stock Performance

As of November 2, 2017, shares of Plug Power closed at $2.88 after gaining more than two percent on the day, yielding a market capitalization of approximately $650 million. Plug Power hit a one-year high of $3.07 in early October, but retreated shortly thereafter showing strong resistance at $2.50. The new deal with Asko helped to push the share price back towards $3.00. Since we reported on the Amazon deal back in April, Plug Power has gained 28 percent.

 

 

Following are selected analyst ratings and price targets:

Analyst	Firm	Rating	Price Target	Date
Eric Stine	Craig-Hallum	Buy	$4.00	10/6/2017
Amit Dayal	Rodman & Renshaw	Buy	$4.00	8/9/2017
Jeffrey Osborne	Cowen	Buy	$3.00	8/8/2017

 

We note that Eric Stine of Craig-Hallum updated his price target from $3.00 to $4.00

 

Stock Influences

• Improved profitability on the company’s existing business;
• Entry into the Chinese market;
• Possible applications of the company’s technology to consumer vehicles; and
• Further large customer wins.

 

Risk Factors

• The company’s customer base is highly concentrated and highly dependent on two large customers;
• The company has yet to reach profitability, and it is uncertain when earnings will turn positive;
• Product costs are not yet competitive with existing technologies; and
• Due to recent agreements with Amazon and Wal-Mart, investors face significant dilution risk.

 

Summary

The Asko deal is a nice addition to Plug Power’s existing book of business. Due to regulation and other factors, European customers are more motivated to implement renewable energy technologies. This deal should help the company further establish itself in the region, and hopefully yield additional customer wins.

 

The implied second half results suggest third quarter numbers will be strong, but Plug Power investors have been burned before. The focus will be on top-line results, but profitability and cash flows will be just as important.

 

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