Hydrogen fuel cell maker Plug Power (NASDAQ:PLUG) disappointed investors with higher-than-anticipated losses in the third quarter of 2023, as reflected in the 34% decline in the stock in Thursday’s pre-market trading. As of writing, four Wall Street analysts downgraded PLUG stock while several others slashed their price targets, as concerns about mounting losses, funding requirements, and supply woes have dampened Wall Street’s sentiment about the company.
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What Went Wrong in Q3?
Plug Power’s revenue increased 5.3% to $198.7 million but fell short of analysts’ estimate of $220 million. Further, the company’s losses widened to $0.47 per share from $0.30 in the prior-year quarter and were also higher than Wall Street’s consensus of a loss of $0.30 per share.
Plug Power blamed the weakness in Q3 and year-to-date performance on “unprecedented supply challenges” in North America’s hydrogen network. Nevertheless, the company views the ongoing hydrogen supply troubles as a temporary issue, especially given that it expects the Georgia and Tennessee facilities to produce at full capacity by the end of this year.
Aside from the impact of hydrogen supply disruption on the company’s Q3 gross margin (negative 69%), the company’s need to raise additional capital to fund its activities also spooked investors. The company is considering various funding options, including corporate debt financing solutions and the U.S. Department of Energy’s (DOE) loan program.
Analysts’ Reactions
In reaction to the results, JPMorgan analyst Paul Coster downgraded Plug Power stock to Hold from Buy and lowered the price target to $6 from $10. The analyst stated that the company’s Q3 earnings reflected numerous headwinds. Coster particularly highlighted short-term cash issues due to operational and scaling-up challenges and an adverse hydrogen supply backdrop.
While the analyst believes that Plug can navigate the ongoing cash flow woes, he is cautious due to the tough operating and capital markets backdrops and expects the stock to be range-bound over the next several quarters until there is more clarity around the company’s balance sheet.
Like Coster, RBC Capital analyst Chris Dendrinos also downgraded Plug Power to Hold from Buy and slashed the price target to $5 from $12, blaming limited visibility and margin pressures. The analyst believes that hydrogen availability constraints are weighing on all lines of the company’s business.
Further, Oppenheimer analyst Colin Rusch downgraded Plug stock to Hold from Buy, as he thinks that though the company has several options for strengthening its balance sheet, “the compounding effect of lack of hydrogen availability on equipment sell-through may take a couple of quarters to work through.”
Rusch also noted that the DOE-supported financing is taking significantly longer time than anticipated and is not likely to commence until the second quarter of 2024. While he expects management to successfully sail through all of these hurdles, he expects the stock to likely be under pressure until working capital normalizes, gross margin turns positive, and the company’s growth trajectory is de-risked.
Another Plug Power bull, Northland Securities’ Abhishek Sinha, also moved to the sidelines with a price target of $7, highlighting the “massive miss” on top line and margins. Although the company called the supply woes in the hydrogen network a transitory issue, Sinha prefers to be on the sidelines until he sees clear evidence of a full recovery.
Is Plug Power a Good Stock to Buy Now?
Wall Street is cautiously optimistic on Plug Power stock, with a Moderate Buy consensus rating based on 13 Buys and seven Holds. Prior to the results, PLUG stock was down 52% year-to-date. Given the steep pullback in the stock following Q3 results, the average price target of $13.53 implies an upside potential of 128%.
Conclusion
Near-term headwinds, including hydrogen supply bottlenecks and cash needs, could weigh on the stock until the company improves its financials in the quarters ahead.
