Plug Power (NASDAQ:PLUG) recently won a $20 million backup power fuel cell contract for its ReliOn division. Despite the fact that the company disclosed the win on the 3rd quarter conference call, shares of Plug Power rallied significantly on the news. $20 million is a substantial sum for Plug Power, and brings the company closer to its goal of $150 million in bookings for 2014. The deal, as SA Author Elephant Analytics pointed out, justifies Plug Power's $4 million purchase of ReliOn and will increase Plug's EBITDA going forward.
In recent weeks, the fuel cell sector has fallen for several reasons. First, Plug Power's 3Q was atrocious and the margin miss was deeply concerning. If Plug margins do not head North appreciably, Plug Power, and by extension, the entire fuel cell sector has no future. Second, the price of Brent and WTI have fallen off a cliff. Given that fuel cells theoretically compete against crude, this has created the perception of lower demand for fuel cells. Third, fuel cell companies depend on the investment tax credit that expires in 2017. With the Republicans now firmly in control of both the Senate and House, an extension of the investment tax credit is unlikely. The incentive expiration means slower growth after December 2016. Incidentally, because of the 2017 investment tax credit expiration, Plug Power should have an easier time beating backlog/revenue expectations for next year from all the companies taking advantage of the incentive before it expires. Whether or not Plug Power stock does well in 2015 depends on how well management executes and gets those service and product margins higher. (Given that Plug Power management is actively diversifying into other categories such as the ground support equipment market and possibly hydrogen production plants, this may mean that management does not think they can improve Gendrive margins substantially and is looking for other ways to bump margins higher. This point is debatable, however.)
I have had a neutral view on Plug Power and I still maintain that neutral view. While I have a neutral view on Plug Power, I have a negative view on Ballard Power (NASDAQ:BLDP). Even though it rallied on the news, Ballard Power is actually negatively effected by Plug Power's contract win, as that $20 million contract could have been Ballard Power's rather than Plug Power's. Not only is Plug Power becoming less and less reliant on Ballard Power for its fuel stacks, but also it is now actively competing against Ballard Power. The added competition will likely cause Ballard Power to miss growth expectations going forward and will likely make it extremely difficult for Ballard Power to become profitable for the foreseeable future.
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