Plug Power Earnings: Continued Focus on Buildout of Hydrogen Plants and Scaling Manufacturing

We maintain our $14 per share fair value estimate for no-moat Plug Power PLUG following its first-quarter results. We continue to view shares as attractive for investors looking to capitalize on the growth potential of hydrogen, albeit with a high risk-reward (as underpinned by our Very High Uncertainty Rating).

Plug shares plummeted following results (down 14% on the day), which we equate to perceived downside to the company’s original 2023 guidance. In conjunction with releasing results, Plug provided a downside case for its 2023 financial guidance. Under the lower case, revenue would be $1.2 billion and gross margin would be $50 million versus $1.4 billion and $140 million under original guidance. We see risk that results come in line with the lower case, but view this as immaterial relative to our fair value estimate given Plug’s early stage.

Plug continues to make progress on bringing online some of the first green hydrogen plants in the United States, albeit not without challenges. The company’s first liquid hydrogen plant, 15 metric tons per day in Georgia, plans to begin production in the second quarter. Beyond this initial plant, much of the additional capacity Plug is progressing will enter commissioning late in 2023, with full production not reached until mid-2024. Plug’s in-sourcing of its hydrogen needs via the startup of its own plants over the next 12 months represents the largest needle mover on its path to profitability, in our view.

Plug’s balance sheet continues to be closely monitored given volatile financial markets and the company’s current cash burn. Plug utilized roughly $500 million in cash in the quarter, leaving approximately $2.5 billion in cash and investments at quarter-end. As hydrogen plants come online, we expect the company will be able to raise leverage against the assets, reducing the strain on its cash balance.