Is Plug Power Justified In Sacrificing Near-Term Margin For Long-Term Outperformance?

Plug Power, Inc. PLUG shares are higher after the hydrogen fuel cell energy company reported fourth-quarter results.

The Plug Power Analysts: RBC Capital Markets analyst Joseph Spak maintained an Outperform rating on Plug Power shares and reduced the price target from $39 to $33.

KeyBanc Capital Markets analyst Leo Mariani kept an Overweight rating and $40 price target.

H.C. Wainwright analyst Amit Dayal maintained a Buy rating and $78 price target.

Margin Progress Is Key To Build Confidence, RBC Says: Plug Power's gross billings jumped 78% year-over-year to $155 million, and net revenue came in at $162 million, exceeding RBC's estimates of $155 million and $153 million, respectively, Spak said in a note.

Gross profit trailed expectations due to the impact of a $56-million one-time, non-cash charge associated with future servicing of its legacy fleet, the analyst noted.

Even without the expenses, gross profit would have trailed RBC's estimates due to higher expenses across all business lines, he added.

Plug Power's management reiterated its expectations for margin improvement through 2022, the analyst noted. This will be helped by lower average molecule costs from additional plant capacity, strategic agreements with key suppliers, lower logistics costs and new green hydrogen plants coming online, he added.

Service and fuel margins will likely move toward a break-even rate by 2022 and 2023, respectively, Spak noted. The company also reaffirmed its 2022 revenue guidance, the analyst said.

The 2022 program is much more about foundational improvements that support margin expansion longer-term, he said. 

"PLUG is continuing to spend for large H2 opportunity and large cash balance is allowing them to do so, but progress on margins is key to build confidence that investment is not in vain," Spak said.

Related Link: Why Plug Power's Lead In Fuel Cell, Hydrogen Space Could Create 'Outsized Winner'

Plug Power Focused On Complete Product Offerings, KeyBanc Says: Plug underlined that its primary goal is to be the first mover in the burgeoning hydrogen economy, Mariani said. The company wants to provide its customers with a vertically integrated solution even at the expense of bottom-line profitability in 2022, he added.

The analyst noted the company is exploring partnerships for hydrogen storage and pipelines to further improve its customer offerings. With around $2.6 billion in cash, the company also boasts a strong liquidity position, he added.

Plug will likely generate negative cash flow from operations of $254 million in 2022 and $60 million in 2023, the analyst said.

With its superior growth, solid balance sheet and strong product offerings, Plug Power shares should be trading toward the higher end of its peer range, Mariani said.

H.C. Wainwright On Plug Power's Dual Mandate: The management is now executing with a dual mandate of continuing to deliver strong topline growth and improving the margin profile, Dayal said.

Some key drivers can support margin improvements over the next 18-24 months, the analyst said. They are the deployment of technically advanced GenDrive units that reduce service cost by 50% anda  production ramp from Gigafactory in the second half of 2022. Expansion of the company's green hydrogen network will also help, he added.

"We believe Plug is in the early stages of building out a valuable green hydrogen network to support its own customers as well as the emerging industry," Dayal said.

Clean energy related regulations in all key markets should remain supportive and position the company for further expansion opportunities relative to current business plans, he added.

PLUG Price Action: At last check, Plug Power shares were rising 0.52% to $25.06. 

Photo courtesy of Plug Power.