Plug Power Looks to Show Margin Inflection in 2023

We are decreasing our fair value estimate for Plug Power PLUG to $19 from $23 per share following its fourth-quarter results. The main driver of our decreased valuation is lower revenue assumptions. Our prior revenue forecast was generally above management’s targets through 2026, but below its 2030 target. We now assume revenue growth roughly in line with management’s medium-term targets, while our 2030 revenue ($11 billion) remains well below management’s 2030 target of $20 billion. We continue to view shares as attractive for investors looking to capitalize on the growth potential of hydrogen, albeit with a high risk-reward (Very High Uncertainty Rating). Our no-moat rating is unchanged.

2022 proved to be challenging for Plug. Revenue grew 38% year on year, but at a slower rate than initial expectations (80% growth) and revised guidance (45%-50% growth) as manufacturing delays and customer timing impacted results.

Given the challenges of 2022 we view 2023 as a pivotal year for Plug. The company is guiding to revenue growth of 100% year on year and reaching breakeven operating profit exiting the year. The key drivers of Plug’s 2023 path to breakeven include scaling manufacturing and insourcing its hydrogen demand via its hydrogen network. We expect achieving the breakeven operating profit to be a stretch and forecast a continued operating loss into 2024 (negative 5%). Nonetheless, if the company is able to achieve its revenue growth target and show material progress in its operating margins, we would view 2023 as a material positive toward Plug’s long-term goal of being a leader in the green hydrogen economy.

Plug ended 2022 with approximately $3 billion in cash and equivalents, which we view as sufficient to fund its near-term green hydrogen plant buildout. As hydrogen plants come online, we expect the company to be able to raise leverage against the assets, potentially as early as the second half of 2023 via the Department of Energy’s loan guarantee program.