Alternative energy producer Plug Power (PLUG) may not be on a lot of “household name” lists as yet. That may be about to change. The company has been working to develop a range of new solutions in the hydrogen market.
Now it’s making a step into a completely new chemical: ammonia. The latest move proves that Plug Power has a lot going for it. I’m cautiously bullish on Plug Power right now, especially if it can build on this latest development.
The year dawned bright for Plug Power, as the first two weeks of January saw the company’s value spike. The company’s closing share price better than doubled over the course of early January, going from $32.55 on January 4 to $69.50 on January 12. One final boost in late January gave the company its high closing point for the year.
That was when the bottom fell out and Plug Power began a decline that would last nearly five months. Recovery followed, to at least some degree. The company struggled to reach the levels it had seen before the January run-up. October’s arrival breathed new life into the company. Now Plug Power shares are seen reliably trading around the $40 mark.
The latest news on Plug Power is staggering in its potential. Fertiglobe — a partnership effort between several organizations — has turned to Plug Power to provide a 100-megawatt electrolyzer system for Fertiglobe’s efforts in Egypt.
Fertiglobe will take that electrolyzer and use it to produce hydrogen. The hydrogen will then will be used as feedstock to produce ammonia. Plenty of ammonia, too; the electrolyzer’s output is expected to be sufficient to make 90,000 tons of ammonia.
Plug Power CEO Andy Marsh noted that this is part of Plug Power’s push to sell more electrolyzer systems. With these sales, the company can get an edge in both green hydrogen and green ammonia. (See Analysts’ Top Stocks on TipRanks)
Wall Street’s Take
Turning to Wall Street, Plug Power has a Strong Buy consensus rating, based on 13 Buys and four Holds assigned in the past three months. The average Plug Power price target of $48.29 implies 12.5% upside potential.
Analyst price targets range from a low of $35 per share to a high of $78 per share.
Building on Growing Chemical Demand
Plug Power might have been able to make a case for itself in terms of hydrogen demand. However, it’s the addition of ammonia that’s especially interesting. Sure, there’s potential for hydrogen to be the clean-burning fuel of tomorrow. However, that takes a lot of retooling in order to make it work. Retooling is expensive. This means extensive retooling won’t happen until things break down completely.
Ammonia, however, is a whole different matter. It’s not exactly widely known outside of the farming and agriculture communities. Ammonia is a much bigger part of growing food than you may think. Without a lot of technical explanation, ammonia is a major component in producing nitric acid. Nitric acid is then combined with other components to make nitrate fertilizers like ammonium nitrate.
Other chemicals from there can produce urea ammonium nitrate or UAN solution. Both mono- and diammonium phosphate are also available with ammonia.
Having a reliable source of ammonia can go a long way toward producing several powerful fertilizers. With these, improved crop yields and better outcomes for farmers should follow. Farmers don’t exactly have the best profit margins, but being able to reliably produce substantial amounts of crops gives them the best shot at profitability. It also keeps large portions of the planet from starving to death.
Concluding Views
Plug Power might have been a good investment on the strength of its hydrogen generation capabilities. Hydrogen fuel cells and the like may be a big deal someday. That’s particularly true given how much water this planet has to work with. Ammonia, however, will be as vital tomorrow as it is today.
Plug Power’s work to step into the ammonia sector should be a big step upward for the company. That means plenty of new possibilities for revenue, and plenty of reason to be bullish about this company.
Branching out into new product lines is usually a smart move, especially when the product is highly desirable. There doesn’t seem to be a reason for that not to be the case here.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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