Plug Power: We’re Reducing Our Fair Value Estimate on Slower End Market Growth and Plant Delays

We lower our fair value estimate for no-moat Plug Power PLUG to $14 per share from $19 following a review of our financial expectations. The main drivers of our decreased valuation are reduced revenue growth and lower margins as we now expect a more protracted multiyear revenue and margin ramp.

We view Plug shares as undervalued following sharp underperformance year to date (down 27%). However, we see a high risk-reward and we reiterate our Very High Morningstar Uncertainty Rating due to the wide range of potential outcomes for the company. The next 12-18 months are likely to be especially critical for Plug Power as it strives to bring online green hydrogen plants and achieve profitability.

2023 was anticipated to be a year of margin inflection for Plug Power as it starts operations at its initial green hydrogen plants and scales manufacturing. We emphasize Plug’s ambitions are sizable, and execution against these plans—including bringing online the first green hydrogen plants in the U.S.—carries challenges. As such, we adjusted our forecast to represent a more gradual ramp in green hydrogen production. Additionally, we incorporate a slower growth rate for end applications as potential customers await policy clarity. The result of these changes is a 14% and 9% cut to our 2025 revenue and operating income expectations, respectively.

Plug ended 2022 with approximately $3 billion in cash and equivalents. We expect 2023 cash burn of approximately $1.3 billion. While the company cites the ability to raise leverage against operational green hydrogen plants in 2024, we view a pairing back of its capital expenditures as on the table in the event this is delayed or if capital markets were to become unfavorable.