shares were dropping Wednesday, even after KeyBanc Capital Markets initiated coverage on the stock with an Overweight rating.
Analyst Leo Mariani sees Plug Power (ticker:
) as a leader within the fuel cell industry, due to its high revenue growth, scalable business, and strong corporate partnerships. Mariani’s price target for the stock is $40.
Plug Power fell 3.4% to $27.19 on Wednesday. Shares slipped 22% last year.
“We prefer fuel cell companies that have the right corporate and government partners, which we think are needed for market access, and strong revenue growth potential throughout the rest of the decade,” Mariani wrote in a research note.
Plug Power, which makes hydrogen fuel-cell-powered fork lifts, fits the bill. The company has one of the largest scale businesses compared with its public peers, Mariani said. Its revenue growth is at more than 50% per year for the next few years, and has crafted strong partnerships with Amazon, Home Depot, General Motors, and Walmart, which contribute more than 50% of consolidated revenue, he added.
“Going forward, PLUG hopes these key customers will become purchasers of its stationary power fuel cell systems and develop more H2 powered commercial vehicle capability as these companies already have the hydrogen fuel infrastructure in place to do so,” Mariani wrote.
The company is the dominant player in the business, with about 90% market share globally, the analyst said. It is likely Plug Power maintains this share, as it targets to generate more than $750 million in revenue from its material handling business in 2024 and deploying more than 125,000 of its GenDrive units.
Marini believes Plug will shortly benefit from expanding its global reach. The company has strategic alliances with major players in South Korea, France, Spain, and Australia that will continue to catalyze growth in the coming years.
“We think these important partnerships put PLUG in a good position to grow its business internationally as Europe, South Korea, and Australia are very focused on making hydrogen an integral part of their energy futures,” he wrote.
To top it off, the company has $3.5 billion in cash on its balance sheet as of Sept. 30, 2021 — enough for three years’ worth of funding. This is key for the analyst, who doesn’t foresee Plug becoming cash flow positive until 2024 at the earliest, especially as it embarks on an ambitious plan to build out a network of green hydrogen production plans in North America and Europe.
“Sales of liquid hydrogen have been a money losing business for PLUG historically, but we expect this to turn around in 2023,” he said.
Write to Sabrina Escobar at [email protected]