Plug Power: Continue To Avoid The Hype

Plug Power (NASDAQ:PLUG) jumped more than 10% in pre-market as the company again made large revenue projections through 2030. The clean energy stock lost most of those gains after the market realized the company isn't projecting a step-up in forecasts when the biggest issue all along has been hitting internal targets. My investment thesis remains bearish on the stock due to management constantly missing long-term financial targets.

Societal Value Focus

The Plug Symposium held on Oct. 11 focused heavily on societal value benefits of green hydrogen. Our view has long held these societal value benefits drive investors into a stock like Plug Power that lacks the financial discipline to reward shareholders.

While green hydrogen might have societal value benefits, Plug Power highlights how the costs for renewable hydrogen are only lower than diesel when including a large amount for "damage cost" of diesel. If society really valued green hydrogen, the amounts would flow into the financials via stronger sales, but corporations and individuals aren't always interested in paying higher costs for the perceived greater good of society.

The stock just recently hit new lows after pushing out hydrogen production targets. As par for the course, Plug Power constantly pushes out projects and hydrogen production targets.

The latest move apparently is to push out production for plants in Louisiana, New York and Texas back from prior schedules. The Louisiana plant was expected to be operational in late 2023 and the guidance is now for early 2024 while the larger New York and Texas plants are pushed into late 2024.

Sales To The Sky

Plug Power reported Q2'23 revenue of $260 million for 72% growth. As much as the growth was impressive, the green hydrogen company always ends up with expenses surging as well due to production and sales targets not hitting goals while assuming the costs.

The stock appeared to jump in pre-market due to this forecast for 2027 revenues of $6 billion, up from $1.2 billion this year. The major issue here is that first half revenues were only $470 million with a forecast for 2H revenue of $730 million while the 2027 forecast requires sales to jump 400% in the following four years.

As highlighted in my prior research at the end of June, Plug Power forecast $5 billion in revenues for 2026 followed by $20 billion in 2030. The new financial targets shifted the forecasted year from 2026 to 2027, left the 2030 target unchanged and the 2023 target was actually lowered to the lower end of $1.2 to $1.4 billion.

The prime issue remains that Plug Power actually reported record revenue in the June quarter at $260 million. Yet, the company reported the largest loss in corporate history at $0.40 per share.

The guidance suggests a massive boost in revenues with more record revenue in Q3 at $331 million followed by a huge jump in Q4 to $481 million. If Plug was to actually hit this revenue target and lower the losses in half via positive gross margins, the investment story might actually turn interesting.

The problem is that Plug was in this exact scenario last year forecasting massive revenue growth in the second half of the year. The company forecast 2022 revenue of $900 to $925 million for the year and both Q3 and Q4 numbers missed estimates by ~$50 million leading to revenues of only $701 million for the year.

A prime example is that Plug Power spent $101 million on SG&A costs in Q1 while revenues were only $260 million and gross margins were negative. The company is operating to where hitting aggressive financial targets are needed to just eliminate losses, yet these revenue targets get pushed out while costs continue to rise.

Plug Power forecasts having five green hydrogen fuel plants online by the end of 2024. These plants will produce substantial revenues with a target of going from 10 tpd now to 159 tpd ending the year.

Investors will want to watch the sales growth and the related costs for the fuel. Plug Power just having the plants open isn't the same as producing revenues and ultimately profits.

Plug Power has seen the market cap fall to only $4.5 billion. If the company hit the 2027 financial target, the company would have gross profits of $1.9 billion. The company would become highly profitable in the process with an operating expense base in the annual range of $500 million. The problem is that analysts only forecast 2027 revenues of $5.2 billion and associated lower gross margin and higher operating expenses 4 years later likely leaves Plug Power still without any profits.

Takeaway

The key investor takeaway is that Plug Power and green hydrogen offer a lot of excitement. Investors have to remember to buy the business on the actual financials and not any hype related to societal benefits that don't actually flow into the financials.

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