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Analyst Blog

On Jul 15, 2014, the share price of Plug Power Inc. (PLUG - Snapshot Report) closed at $4.85, reflecting a jump of 16.03% from the previous day’s closing. The publication of an initiation report on Plug Power with Outperform rating by Arlington, VA-based firm FBR & Co. (FBRC), previously known as FBR Capital Markets Corporation, boosted its share price. FBR & Co. projected a 12-month price target of $8 per share.

Factors for Outperformance Rating

FBR & Co. has pointed out several growth indicators including transformation of business model, diversified customer base, winning of new orders in the U.S., expansion plan in the European market and the roll-out of a hydrogen delivery solution, which could act as catalysts for Plug Power’s future growth.

FBR & Co. believes that Plug Power has successfully transformed its operations from the introduction of fuel cell power packs in material handling systems to offering hydrogen-based solutions for a broad array of material handling applications.

Plug Power has showcased its comprehensive GenKey hydrogen fuel cell solution during the MODEX 2014 tradeshow in Atlanta and the 2014 Warehousing Education and Research Council tradeshow and conference in Chicago.

GenKey solution consists of three separate elements: GenDrive fuel cell units, GenFuel hydrogen fuel and infrastructure, and GenCare maintenance service. Plug Power offers full integration and utilization of the whole GenKey package for customers to ensure flawless conversion to hydrogen fuel cell-based power for their material handling functions. Introduction of GenKey solution makes the material handling process easier.

For the Genkey solution, Plug Power has already received order from Wal-Mart Stores Inc. (WMT - Analyst Report). Another retail firm, The Kroger Co. (KR - Analyst Report), will also deploy the GenKey solutions at its two sites.

In Mar 2014, Plug Power received a multi-site GenKey purchase contract from Wal-Mart Stores. Per the agreement, Plug Power will supply 1,738 GenDrive fuel cell units, which will be deployed at Wal-Mart’s six North America distribution centers over the next two years. Plug Power will provide service to these units for six years.

Introduction of the new solution and strong existing product line are expected to help Plug Power win more contracts from the existing customers or add new ones. The company’s customers range from food distribution companies to industrial manufacturing firms.

It is evident from past records that Plug Power often receives orders from domestic and foreign customers. In May 2014, Plug Power obtained an order from Central Grocers to provide 182 next-generation GenDrive fuel cell units to operate its electric lift truck fleet in Joliet, IL. In addition, Plug Power entered into a 5-year GenCare service agreement with Central Grocers for the latter’s GenDrive fleet.

In addition to solidifying presence in the U.S., Plug Power is also expanding its European operations as the European market is roughly 100% larger than the U.S. market. Plug Power has taken several initiatives, including joint venture with Air Liquide, to tap the prospective European market and meet higher demand for the electric forklifts.

Zacks Findings

We have identified few positives, including an increase in sales force and reduction in operating costs through acquisition of ReliOn Inc., which can act as growth drivers for Plug Power.

Plug Power’s strategic initiative includes deployment of higher number of sales force to deal with the increasing demand for products and services. This initiative will enable the company to frequently attend customers and respond quickly to their requirements. Steady follow up and meeting with clients will help Plug Power to renew the existing contracts and win new ones.

On the other side, Plug Power is currently following inorganic route to expand its operations. On Apr 2, 2014, Plug Power has acquired the assets of ReliOn Inc. Spokane, WA-ReliOn Inc., a developer of hydrogen fuel cell stack technology and fuel cell systems.

In addition, the company partnered with French company Axane, S.A. under the name HyPulsion, S.A.S., to develop and sell hydrogen fuel cell systems for the European market. In Apr 2014, the company has signed a memorandum of understanding with South Korean company Hyundai Hysco to form a joint venture to manufacture and sell hydrogen fuel cells in Asia. These initiatives will enable Plug Power to manufacture products at a lower price and reduce dependence on third party suppliers.

In a Nutshell

We expect Plug Power’s successful transformation of business model, a strong order book from U.S. clients, growth in sale force counts, increasing focus on the European operations and disciplined investment in inorganic growth strategies to boost its future performance.

Zacks Rank

Plug Power currently has a Zacks Rank #3 (Hold).

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