Another article:
Don't Pull The PLUG On Plug Power Just Yet
A recognized powerhouse in hydrogen and fuel cell power systems, Plug Power (NASDAQ:PLUG) provides consumers with cost-effective energy solutions that increases productivity and reduces their carbon footprints. As the international population has become more educated about climate change and because fossil fuels are slowly dwindling, the alternative energy market, including hydrogen fuel cells, seemingly have a highly bullish long-term picture.
Having said that, Plug Power first-quarter results released in May demonstrated that the company continues to be unprofitable. In fact, losses increased to $11.1 million, more than what they were a year ago, due to increasing costs. This is especially true for total administrative costs which doubled during the first quarter of 2015 compared to the same quarter in 2014. Although Plug Power stock has had a volatile past year and its fiscal problems are concerning, many analysts believe that its current low level, amongst numerous other positive indicators, gives investors a strong entry point for buying into PLUG.
Revenue Continues To Increase
Over the past five years, revenues for Plug Power have almost quadrupled, as can be seen in the image below. This kind of constant and sustainable growth is a significant indicator of what the future has in store for the company as its stock price is reliant on the promise of expanding revenue until it becomes profitable. This trend has continued into the first quarter of 2015 with revenue nearly breaking the $70 million dollar mark.
(click to enlarge)
The constant pace of revenue growth does not seem likely to start slowing anytime soon. Plug Power recently announced that 419 GenDrive Units were shipped during the first quarter, and construction had been made on seven hydrogen fueling stations. These sales will show up in the second quarter earnings report, and would demonstrate a dramatic increase compared to the recently ended quarter. By contrast, during the first quarter, revenues were driven by 265 GenDrive units and one hydrogen fueling station. The increase in GenDrive sales alone is an increase of 58%.
Furthermore, company executives believe that production and sales will exponentially increase in the last two quarters. Plug Power maintains that it will achieve $100 million in total sales during the fiscal year, with 35% to 40% being completed by the end of the second quarter. With the first quarter representing around 10% of this total, it would mean second quarter revenue would make up 25% of this total, amounting to close to $25 million.
Even if the company executives are being highly optimistic and Plug Power may not reach that level by the next quarter, it should almost definitely surpass that level during the two quarters in the second half of the year thanks to partnerships with vast retail empires, including Wal-Mart and Kroger. Large partnerships with companies such as these are vital for the company's success as it continues to work on making its hydrogen solutions more affordable for smaller retail stores. Currently, these large partnerships continue to expand, with 42% of shipments that will be recognized next quarter going to a single customer.
Improved Gross Margins
Whilst Plug Power's Gross Profit Margin has been almost consistently negative over the past five years, the company's net income results over the past year are starting to look promising. As a result of increased sales the company's net income fell during the previous quarter but gross margin actually increased. During the first quarter of 2014, gross margin was -41%. This figure improved to -22% during the first quarter of 2015. During the earnings call, CEO Andy March claimed that the GenDrive business would achieve gross margins of 30% by the end of the year.
(click to enlarge)
The recurring customer base provided by large companies like Wal-Mart and Kroger, as well as the addition of Home Depot, will be emphatically essential to the company as Plug Power focuses its effort in attempting to replicate its GenFuel business to achieve similar margins. Doing so would allow the company to build its goal of establishing a $400 to $500 million material handling business within the next four to five years.
Improving these gross margins will also be key before the ITC tax credits expire in 2017. Marsh addressed these concerns during the earnings report, saying he was unsure about whether this tax credit would be extended past its current expiration date. More importantly for long term investors, however, he did state his goal all along was to make the company financially viable without tax credits, whether it continues to be apply or not, and that it is not an essential component for the long-term success of the Plug Power.
Widening Clientele
Plug Power's signature product, GenDrive, has become highly successful and there are currently 7500 units in operation. Consequently, Plug Power have traditionally catered their marketing and sales towards the forklift industry.
Now Plug Power looks to widen its client base and have recognized numerous unexplored opportunities which could potentially enhance growth.
Plug Power is now developing fuel cell range extenders to use with an emerging class of electric delivery vehicles. These electric vehicles can currently only travel a specific distance on one charge - approximately 80 miles. By adding a hydrogen fuel cell, that range can more than double. The market for this innovative product is very large, and includes vehicle fleets such as parcel delivery trucks, taxis, and port vehicles. Plug Power is currently developing this technology through a $3 million grant from the Department of Energy with FedEx Express.
Although this is only one project. The partnership with FedEx could foster into something a lot larger and more lucrative for both companies in the future. Indeed, is a phenomenal amount of growth opportunities that could arise from this collaboration.
Likewise, Plug Power's close relationship with Southern Company has helped provide their wireless network subsidiary with backup power systems to maintain constant connectivity for Southern Company and their customers.
Plug Power have also opened up another new campaign which would include creating fuel cells specifically designed for refrigerated trucks - a new untouched niche market.
If these new campaigns develop according to plan, then PLUG stock will undoubtedly rebound to highs not seen for a while.
Expanding their Automotive Market
To-date, Plug Power has helped BMW, Mercedes-Benz and Honda successfully operate GenDrive power, and occasionally the complete GenKey product. Auto manufacturers have now discovered that they can easily adopt hydrogen fuel cells to power their material distribution fleets.
Successful collaborations with automotive giants, like BMW, Honda, and Mercedes-Benz, opens up numerous opportunities for global expansion of fuel cell usage. Plug Power's international business development team is currently working with vehicle manufacturing customers in other countries, including the UK, Germany, Spain and Mexico, to broaden their use of GenDrive and GenKey.
Analysts Opinion
Analysts tend to agree with the bullish fundamental analysis of the company. On April 17th Dougherty and Company recommended PLUG stock as a "buy". The buy recommendation is in line with average recommendation from analysts according to Yahoo! Finance, which have a consensus rating of a "buy" for the stock.
Source Yahoo! Finance
The mean target price set by analysts who are covering the stock is $3.90. In my opinion, this is a very low target and will move up by a significant percentage over the next few months.
Conclusion
Despite currently making losses, by expanding their core market and widening their clientele base, Plug Power will be on track to meet their goals for total sales of $100 million during the current fiscal year. Indeed, Plug Power's future looks very positive and I would not advise any investor to pull the plug on their stocks
