Plug Power (NASDAQ:PLUG) reported strong first-quarter results on May 7, as its material-handling business was resilient during the coronavirus crisis. Meanwhile, the company’s large investments in hydrogen production leave it well-positioned to benefit from the likely proliferation of hydrogen trucks within a few years, and Plug Power has a great deal of room to expand its material-handling business. As a result of all these points, I remain very upbeat on PLUG stock.
Strong Q1 Results
Plug Power’s gross billings jumped nearly 90% year-over-year to $43 million. Its bottom line results weren’t as impressive. Plug Power explained that higher service costs related to the coronavirus outbreak negatively impacted its profitability. Still, its EBITDA, excluding certain items, improved 30% to -$6.1 million from -$8.8 million during the same period a year earlier, and its per share loss narrowed to -12 cents from -14 cents.
Importantly, Plug Power reiterated its 2020 gross billings guidance of $300 million, representing 25% YOY growth. It also is still targeting $1 billion of gross billings and $170 million of operating income by 2024. And Plug Power CEO Andy Marsh stated that $290 million of the $300 million of gross billings that it expects to generate in 2020 have already been booked.
As I previously predicted, Plug Power’s Q1 results were boosted by strong demand from its top customers, Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN), both of which have continued to operate during the crisis. Plug Power CEO Andy Marsh noted on the company’s Q1 earnings conference call that its largest customers will add its products to four more warehouses than they had committed to before the year started.
Further, as I had also expected, the company benefited from strong demand from its grocery store customers in Q1. In fact, Marsh reported that some of the company’s food distribution customers are deploying 30% more food than during their holiday season peaks.
Investments in Hydrogen Production
On May 5, Plug Power announced that it was “in advanced negotiations” to buy United Hydrogen, which has “a low carbon, 6.5 ton liquid hydrogen plant today that will soon be expanded to 10 tons,” according to Marsh. The CEO stated that the 10 tons will represent 25% of his company’s hydrogen usage as of the end of 2020. He added that the deal will increase the margins of the hydrogen that the company sells.
According to Plug Power, United Hydrogen “has a low carbon footprint as it uses by-product hydrogen from chlor alkali plants.” Marsh indicated that United Hydrogen is using a liquefier to develop “extremely low-cost hydrogen.”
Additionally, Plug Power said it had signed a letter of intent to buy “an electrolyzer company.” Electrolyzers are used to make “green” hydrogen.
In a statement, Marsh said, “We expect that both of these acquisitions would provide Plug Power with comprehensive skill sets in the entire hydrogen value chain and pave the way for going from low-carbon to zero-carbon hydrogen as we continue to focus on building the hydrogen economy.”
As Marsh indicated, these deals will help Plug Power produce hydrogen with low-carbon footprints. That, in turn, will increase the attractiveness of its hydrogen to companies that are looking to increase their own environmental bona fides by deploying hydrogen-powered trucks.
I believe that these deals, along with Plug Power’s existing infrastructure, will leave Plug Power well-positioned to become a top seller of hydrogen to the growing number of companies that will switch to using hydrogen-fueled trucks for short-range and medium-range deliveries.
As I wrote in a previous column, hydrogen is a much better solution for powering “green” trucks than batteries. Moreover, I noted that “in 2018, Anheuser Busch (NYSE:BUD) bought 800 fuel-cell-powered trucks from start-up Nikola and Toyota (NYSE:TM) and Paccar (NASDAQ:PCAR), which owns Kenworth trucks are building 10fuel cell trucks that will be used at two California ports.”
In a subsequent column, I reported that Marsh had said that Plug Power was collaborating with two of its “pedestal” customers to “put some (trucks) on the road in the coming half year.”
So there’s a great deal of evidence that demand for hydrogen is going to jump. And Marsh stated that the company “sees rather broad opportunities” to sell hydrogen, either on its own or with a partner.
On a negative note, I’m slightly less bullish about the company’s medium-term opportunity in the truck space. That’s because Marsh indicated on May 6 that demand for the company’s on-road hydrogen vehicles was increasing more slowly than he had expected.
Plug Power may be encountering greater competition in the space than it had anticipated. And Walmart and Amazon may have decided to prioritize expanding their capacity to meet increased demand during the coronavirus crisis, resulting in their hydrogen truck projects being put on the back burner.
The Bottom Line on PLUG Stock
Plug Power reported strong Q1 results. Given its ability to save companies money on material-handling vehicles, the strengthening e-commerce revolution, and the fact that a very low percentage of U.S. material-handling vehicles utilize the company’s products, its material-handling vehicle business has a great deal of room to grow.
And in light of the company’s status as the largest user of liquid hydrogen in the U.S. and its pending acquisitions, Plug Power is very well-positioned to become the leading seller of hydrogen in the U.S.
As a result of the company’s strong results and its huge opportunities, I continue to recommend buying PLUG stock.
As of this writing, Larry Ramer owned PLUG stock. Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Lyft, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.