Unlike other more established clean energy subsectors such as renewable energy and inverters, Wolfe analyst Steve Fleishman considers the nascent hydrogen space as “more of a ‘story’ with a lot of promise but not a lot of EBITDA.”
That said, even though it is still a few years behind renewables’ current status, over the long term, the analyst believes the part it will play in the energy transition will be “critical and quite large.”
As hydrogen becomes a “driver” in the energy transition, there is massive growth potential for hydrogen-focused companies, even though most today are not much more than small businesses – or as Fleishman calls them, “concept stocks.”
One name in particular, though, has caught Fleishman’s eye.
“We like Plug Power’s (PLUG) positioning as the hydrogen market develops with its integrated strategy, established business and broad set of commercial relationships,” said the analyst. “We think that Plug will be among the first to transition from such a ‘story’ stock to one that has meaningful positive cash flow and sustained growth.”
There are also several catalysts on the horizon. While the analyst notes that the company already boasts a “big materials handling business plus electrolyzers, fuel cells and production & distribution of hydrogen,” at its annual investor meeting in October, there should be more “clarity on the inflection points to positive and growing cash flows.”
Additional insights into the “multi-billion dollar sales ‘funnel’” the company sees for its electrolyzer offerings, and updates on the major JVs are also anticipated.
Moreover, there’s the potential of $9 billion in funding from the federal infrastructure bill, which will help push the H2 market forward. These investments could benefit PLUG’s footprint and be even more of a boon for the company should a production tax credit (PTC) be implemented which would see domestic demand for electrolyzers accelerate.
No discussion around Plug Power is complete without a mention of its lofty $15 billion market cap, which seems “high for an option on hydrogen.” However, the analyst says more than half of this is “made of cash and value of the existing business.” And if the hydrogen theme plays out, there’s still plenty of room for further upside.
So, down to the nitty gritty, what does it all mean for investors? Fleishman initiated coverage on PLUG shares with an Outperform (i.e., Buy) rating and $34 price target, suggesting shares have room for 26% growth over the next year. (To watch Fleishman’s track record, click here)
Looking at the Street’s average target, Fleishman’s objective appears conservative; at $41.06, the forecast calls for 12-month gains of ~52%. Overall, the stock has a Moderate Buy consensus rating, based on 12 Buys, 5 Holds and 1 Sell. (See Plug Power 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.
