Plug Power (PLUG) is a pioneer in hydrogen fuel cells — alternative “engines” that use hydrogen gas to create electricity to power an electric car, with water being the only byproduct.
Plug Power is also a rising force in hydrogen gas production, announcing in June 2020 that it had acquired two smaller companies specializing in production of the gas. Soon, Plug will be able to produce not just engines that use hydrogen as their fuel — but the fuel itself.
With Plug Power making moves to capture the entire hydrogen value chain, the company has promised investors that just three short years from now, Plug will be pulling down annual revenues of $1.25 billion, and converting $200 million of that into operating profit.
But now, even those could turn out to be conservative estimates.
On Wednesday after the market closed, Plug Power announced an alliance with South Korean industrial giant SK Group. Under the terms of this deal, which is expected to close before the end of this quarter, Plug will issue, and SK will buy for $29.29 each, approximately 51.4 million new Plug shares. SK’s investment in the fuel cell company will therefore amount to a cool $1.5 billion, and in exchange, SK will receive a 9.9% ownership stake in Plug. Together, the companies will then proceed to “provide hydrogen fuel cell systems, hydrogen fueling stations, and electrolyzers to the Korean and broader Asian markets.”
Furthermore, Plug and SK will create a South Korean joint venture “to support the rapidly growing Asian Market.” As the companies noted in their press release, South Korea’s government has established a “Hydrogen Economy Roadmap through 2040” aiming to put six million fuel cell vehicles on local roads, establish 1,200 refilling stations to fuel the cars, and produce more than 5 million tons of hydrogen annually to fill the filling stations. In total, the country hopes to create a $40 billion “hydrogen economy” by 2040.
Investors responded to the news with enthusiasm, bidding up PLUG shares by 28%, as of this writing.
Indeed, all of the above is pretty exciting news, and over at investment bank Oppenheimer, analyst Colin Rusch is quite excited about it.
The 5-star analyst believes the $1.5 billion investment by and partnership with SK Group will help to boost Plug Power’s revenues by an additional $500 million by 2024. Added to the $1.25 billion Plug was already promising before this deal was announced, that’s a 40% increase over previous projections. What’s more, investors may not need to wait until 2024 to being profiting from this news, because Plug will release updated financial targets as early as January 21, when the company is expected to give a new corporate update addressing the SK deal.
So what’s the downside, if there is any? Well, there’s the tiny detail that, no matter how much hydrogen it produced nor how many fuel cells it manufactured, Plug Power has never once in its 24-year-long history actually earned a profit. It didn’t promise to earn any profits from this latest deal, either, nor did Rusch predict any.
Overall, Rusch stays with the bulls, rating PLUG an Outperform (i.e. Buy). (To watch Rusch’s track record, click here)
Turning now to the rest of the Street, investors are presented with a conundrum. On the one hand, based on 9 Buys, the stock has a unanimous Strong Buy consensus rating. However, the analysts expect shares to tumble 22% as indicated by the $36.11 average price target. This is most likely a result of today’s quick surge and analysts’ inability to turnaround new price targets so quickly. (See PLUG stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.