Why is Plug Power up 5800% in the Past Year?

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Plug Power (NASDAQ:PLUG) is focused on providing hydrogen fuel cells to the forklift market which look to replace previously used lead-acid batteries with a cleaner technology. Hydrogen fuel cells operate silently, at high efficiency, and are environmentally benign with the only by-product at point of use being water. They can be fueled in as little as 60 seconds, maintain constant power, and are grid independent since hydrogen can be produced anywhere where there is water. Plug’s fuel cell solution is called the GenDrive and revenues are not only derived from the sales and servicing of these units (50-60% of potential revenues), but also the hydrogen infrastructure needed to power the units.


Plug has deployed more than 4,500 GenDrive units to customers including Walmart, Sysco, Procter & Gamble, and Mercedes Benz. While this value proposition may sound enticing, it hasn’t been very profitable for long-term investors who have held Plug Power since their 1999 IPO and who would have already lost 93% of their investment today.

Why the Recent Hype?

On February 26th, 2014, Plug Power announced a multi-site purchase order from Walmart to roll out the GenDrive hydrogen fuel cell solution to power electric lift truck fleets at six North America Walmart distribution centers. This led to Plug being among the most traded stocks on the NASDAQ following this announcement. The first of six sites will be deployed by Plug in the second quarter of 2014 with a total of 1,738 GenDrive fuel cell units, to be deployed over two years’ time. Since Walmart already has 535 GenDrive fuel cell units in operation,  this agreement represents a tripling of Walmart’s commitment to Plug Power’s fuel cells.

Walmart logistics states that they have 158 distribution centers in the US alone, each having more than 1 million square feet and using more than 5 miles of conveyor belts. Based on Plug’s recent contract of 1,738 units for 6 distribution centers, this averages out to 290 fuel cell units per distribution center. With analysts estimating the value of the contract at $50 million, this means each fuel cell is expected to generate around $28,800 in revenues for Plug which Plug CEO Andy Marsh called “not a bad estimate”. Extrapolating these numbers out, the potential total contract revenues from Walmart alone could exceed $1.3 billion (290 X 158 X $28,800). Using these same numbers, we can speculate that Plug has only managed to capture just 5% of the Walmart opportunity so far.

The Ripple Effect

4 North American fuel cell companies that have been in the spotlight recently are Plug Power (NASDAQ:PLUG), Ballard Power Systems (NASDAQ:BLDP), Hydrogenics (NASDAQ:HYGS), and FuelCell energy (NASDAQ:FCEL). The below table shows just how strong the gains have been lately for these companies, not only on the heels of this announcement, but over the past 5 years:


A company we highlighted recently, ZBB, has also risen on the tail of the Plug announcement, however, ZBB (NYSEMKT:ZBB) investors should note that providing zinc flow batteries for grid storage (ZBB)  is much different than providing fuel cells for forklifts (Plug).

Investors who have been long Plug Power (NASDAQ:PLUG) are probably wondering if they should take profits, longs with no position who are excited about the potential may wonder when to establish a position, and shorts are probably wondering just how viable a short trade might be in the face of such hype. Regardless of whether you are short or long, there is clearly money to be made here, and shorting Plug Power (NASDAQ:PLUG) over the long term may be quite a gamble given the potential of future Walmart contract announcements. In future articles, we will highlight other potential players in the hydrogen fuel cell space that investors may want to look at including other US-traded, international and private companies.

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  • GreenInvested

    You need to read the report “Plugging Into Some Reality: Fair Value of Plug Power is 50 Cents” published by Citron Research.

    Key Points:
    – Historical guidance has not met revenue estimates
    – Subsidies for this technology may end in 2016
    – The company is not profitable and has no analyst support
    And perhaps the most concerning point, the company has no IP or barriers to entry but merely acts as a re-seller for Ballard’s fuel cells.

    Plug was down 41% after this report was published. It’s worth a read.

    • Nanalyze

      Thank you very much for the very interesting report from Citron.

      As you said, the fact that there are no barriers to entry is concerning. Once Walmart has the hydrogen refuel infrastructure in place, what’s to stop them from switching battery suppliers? It should be as easy as taking one battery out and putting in another. It seems highly unlikely that any company with Walmart’s size would put all their eggs in one basket by choosing only one fuel cell supplier. In other articles denouncing the Walmart announcement, the point has been raised that Walmart has been notorious for putting severe price pressure on suppliers as well.

      While the report questions the viability of Plug as a long term investment, it doesn’t discount the potential opportunity of fuel cells going forward. If fuel cells have truly become economically advantageous to use without government subsidies then adoption should increase. There are many other private and public fuel cell companies to look at, not just plug. We’ll look to touch on some of the lesser known players in future article.

    • ERik
  • jp

    Hi all. Can someone sanity check my math? Service rev (according to PLUG’s 2013 10k) is hovering around 25% of operating revenues, so does that mean that a $50m wal-mart contract will generate $12.5m in service revenue over 6 years? ie: ~$2m per year? OR, is the $12.5m only one year’s service revenue, such that for 5 years after the contract, Wal-mart will pay $12.5m each year in service fees?

    • Nanalyze

      Thank you for the comment jp. If we assumed your latter conclusion, then on year 5 Plug would generate 5/6 of the service revenues, year four would generate 4/6 of service revenues and so on. This would mean then that if each year 1/6 of $12.5 of service revenues was realized, the contract would be worth ~44 million in service revenues alone over 6 years:

      Year 6 12.50
      Year 5 10.42
      Year 4 8.33
      Year 3 6.25
      Year 2 4.17
      Year 1 2.08

      With the contract being worth 50 million total, this seems unlikely. This would lead me to believe your former assumption (~2 million per year) is probably more likely.

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