Plug Power Can Ride The Fuel Cell Industry's Growth To New Highs

Aug.28.14 | About: Plug Power, (PLUG)


Plug Power's record results and an improving bottom line indicate that the company is gaining good traction in the fuel cell market.

Plug Power has well-known customers such as Wal-Mart, Volkswagen, Sysco, etc., who are ordering more of its GenDrive and GenFuel units.

Plug Power will also benefit from the growing application of fuel cells in ancillary markets such as power backup, household, telecom, etc.

Plug Power has a robust balance sheet with negligible debt, and its projected bottom line growth is quite strong.

As per Reportlinker, the global fuel cell market, which is still in its nascent stage, is projected to increase at a compound annual rate of 22% till 2020. This presents a sizable opportunity for fuel cell companies. Plug Power (NASDAQ:PLUG) is using this opportunity to its advantage. The company recently reported impressive second-quarter results, with earnings and revenue topping consensus estimates. What's more, its revenue more than doubled year over year, and the company also reported a surprise profit.

In fact, according to a Reuters report, Plug Power "became the first listed North American fuel-cell maker to turn a net profit." Plug Power's revenue for the quarter more than doubled to $17.3 million year over year, and was better than the expectation of $16.4 million. Its net income came in at $3.8 million, up from a net loss of $9.3 million last year. Hence, the company delivered remarkable improvements during the quarter.

After a stellar performance during the quarter, management is confident about getting better in the future. It anticipates strong opportunities globally in the fuel cell market, primarily due to improving adoption of fuel cell technologies in auto manufacturing. Plug Power cites that most of its customers have started using hydrogen fuel cells at their manufacturing sites worldwide.

Gaining traction in retail

As a result, its products are already selling well. For example, Plug Power has sold around 298 GenDrive units to Wal-Mart's (NYSE:WMT) Pottsville distribution center in Pennsylvania, and also installed six GenFuel dispensers for fast refueling. Even as the installation at this site was going on, Plug Power started deploying new GenKey units at Wal-Mart's second facility in New York, which was completed in July.

As a result of these successful installations, the retailer placed another order for its warehouse at Sterling, Illinois. Going forward, Plug Power aims to convert all 100 Wal-Mart distribution centers in North America with its GenKey units. Apart from Wal-Mart, the company has bagged orders from many other customers such as Procter & Gamble (NYSE:PG), Sysco (NYSE:SYY), Golden State Foods, etc.

All customers who opted for GenKey units chose to install the entire Plug Power kit that includes GenDrive fuel cells for material handling vehicles, installation of on-site GenFuel infrastructure with hydrogen fuel, storage, and indoor fueling dispensers.

Automotive growth and global diversification

Plug Power is also gaining orders from automakers such as Volkswagen (OTCQX:VLKAY), BMW, and Honda (NYSE:HMC) among others that will boost its sales in the days ahead. Already, Plug Power is working with various auto companies in four countries -- the U.K., Germany, Spain, and Mexico. According to management, "In these places not only are we developing value propositions to prove the economics for the customers lift truck fleet conversion, we're also evaluating the most appropriate hydrogen solution and how our GenFuel business can expand."

Progressing further in this direction, its European joint venture, HyPulsion, has developed various new products for the material handling market. It has already partnered with various OEMs and started deployments. To support these developments and tap the opportunity in the European market, Plug Power has started increasing its sales force.

In addition, it is also aggressively expanding in Asia with its partnership with Hyundai Hysco. In fact, the company has appointed individuals to develop a customized strategy for the Chinese market.

Product development will propel growth

In a step further toward its clean energy technology, Plug Power has developed prototypes for its fuel cell in airport tugger, which will have the potential to pull around 40,000 pounds of cargo for an airplane's sorting facility. According to management, "Next steps for this project are -- to deliver 15 fuel cell tug units to the Menzies Airport preparing it with an indoor GenFuel hydrogen dispenser." This unit is expected to be delivered in the fourth quarter.

In addition, Plug Power sees high margin expansion in hydrogen generation and distribution. Plug Power's products use around 4% of the liquid hydrogen consumed in the United States. Moving forward, this number is expected to increase.

Moreover, Plug Power should also profit from the increasing application of hydrogen in ancillary areas such as household, automobile, telecom, and power backup. As I mentioned in my last Plug Power article:

"Also, according to Navigant Research, hydrogen consumption for non-traditional applications (those excluding the petroleum and chemical industries) will increase from 168 million kilograms in 2013 to nearly 3.5 billion kilograms in 2030. According to a press release from Navigant -

"While hydrogen has historically been a valuable commodity gas, today, it is increasingly recognized as an important fuel and energy storage vector of the future," says Kerry-Ann Adamson, research director with Navigant Research. "Increased energy demand, requirements to use renewable energy, growth in the cleantech backup power market, and the deployment of a growing number of fuel cell-powered vehicles in the transport sector will all push overall demand for hydrogen as a fuel to unprecedented levels."

The stationary sector, primarily focused on providing backup and prime power to mobile telecommunications base stations, is expected to lead hydrogen demand through 2030, according to the report. This is due to the current levels of adoption, which are much higher than in any other sector, alongside a healthy projected growth rate for fuel cell power stationary systems."

Fundamental view and conclusion

Plug Power is plying its trade in a growing market, and the company has done well so far. Concurrently, Plug Power also boasts of a robust balance sheet. Its cash position of $168 million is way ahead of its debt of $3.5 million. In addition, the company has a very strong current ratio of 10.77. So, Plug Power can easily invest in its growth without having to worry about debt obligations or interest expenses.

Additionally, the company's bottom line is expected to grow an impressive 59% this year and 64% next year. As such, it is clear that Plug Power's momentum is expected to continue going forward, and investors would do well to continue holding the stock in their portfolios.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.