Here’s Why Plug Power Has Gone Parabolic Since June

Morgan Stanley analyst Stephen Byrd just elevated his price target on Plug Power stock.

Shares of Plug Power, which specializes in assembling forklifts powered by hydrogen fuel cells, have already soared this year. Byrd bumped up his price target for Plug Power [$PLUG] by 162% to $38 on Monday. His new target is more than 15% above where shares were trading Monday afternoon. He upgraded the stock to the equivalent of Buy from Hold in September, when shares were below $14.

Ultimately, that fresh price target worked out pretty well. Shares have skyrocketed more than 130% in the past three months, and about 900% YTD. About $3 trillion of “market size is possible over time with the expansion of hydrogen use in multiple areas of the economy,” he wrote in a Monday research report. He also believes Plug’s history with hydrogen fuel-cell powered forklifts give it an advantage over newer fuel-cell players.

Investors are bullish on the potential for hydrogen-based technologies, as Plug’s stock-price performance might imply. Nikola [$NKLA] fueled investor interest in hydrogen when it became a publicly traded entity in June and plans to unveil a hydrogen-powered 18-wheeler truck in coming years. And investors also expect clean green tech to get a boost from the incoming Biden administration. Walmart Jumps Into Self-Driving Vehicle Space

“Four years ago, nobody thought I could get any customers,” CEO Andy Marsh said. “Now, I have three large customers … And I would say that there is a great push on four or five additional anchor customers.”

Walmart [$WMT] was the first to join the Plug team. The massive retail chain is expected to spend more than $60 million with Plug this year installing 2,500 fuel cells at 12 distribution centers across North America. Meanwhile, Amazon [$AMZN] became Plug Power’s second anchor customer in 2017 by agreeing to spend at least $70 million to purchase fuel cells for 11 distribution centers.

The fuel cell manufacturer has built a business out of selling fuel cells and hydrogen refueling stations that large distribution centers use to power forklifts. Plug’s client roster includes a growing number of food suppliers, automakers and hardware chains — from Coca-Cola and BMW to Mercedes, Kroger, Sysco and Ace Hardware. And the total number of fuel cells shipped has tripled from 10,600 in 2015 to 32,000 as of last month.

Investors look as if they’re betting on Plug Power and not on Nikola after the latter company’s debacle with Hindenburg Research. Plug Power’s market capitalization is almost $14 billion, where as Nikola’s has slid to less than $7 billion. Hydrogen-based technologies emit no greenhouse gases when burned or used in a fuel cell. And while hydrogen-gas production can emit greenhouse gases—most hydrogen gas comes from natural gas—the gas can also be developed from renewable electricity and water.

The Department of Energy’s Fuel Cell Technologies Office within the Office of Energy Efficiency and Renewable Energy supports early stage R&D that enables progress in hydrogen and fuel cell technologies, and has collaborated with Plug Power, FedEx, and Charlatte on this work, with FedeX Express deploying a fleet of fuel cell cargo tractors at the Memphis Superhub.

All of that clean-energy potential has made Plug Power a Wall Street darling. Eleven out of 12 analysts covering the stock rate shares at Buy. The average Buy-rating ratio for stocks in the Dow Jones is about 58%. But recent gains have left shares trading above the average analyst price target of about $28. Byrd’s target is now the highest on the Street among large brokers.

Byrd also on Monday boosted his price target for Bloom Energy [$BE], which he rates Buy. His new price target is $32, up from $21, after Bloom shares gained 50% in a month. Bloom, for the most part, makes fuel cells for stationary power generators, and has a market cap of about $4.4 billion. That smaller market cap might be why Bloom’s stock got a bigger bump from Byrd’s bullish call on Monday. Bloom shares rose 3.6% in Monday afternoon trading, while Plug stock is up 1.2%. The S&P 500 and Dow, for comparison, are down 0.3% and up 0.3%, respectively.

Byrd does acknowledge risks to his bullish view, mainly the possibility that slower development of the hydrogen industry could lead to slower growth for both companies. That is why his best- and worst-case scenario prices for both stocks are very wide. Best-case scenario, Byrd predicts Plug going to $73 a share, but his worst case for the stock is $12. For Bloom Energy shares, his best-case price is $61, compared with a worst-case target price of just $1.50.

“I remember my first time walking on the manufacturing room floor. It was April 8, 2008, my first day on the job,” Marsh said. “There was nothing going on … We were kind of a scientific playground. Any type of fuel cell you can name we were doing it.” It takes time to build a market for a new product, Marsh said. That was the case for wireless phones and that was the case for broadband. Today, there is a market for Plug’s products, Marsh said.
“And I believe we can make a fuel cell for anything,” he said.