Helped by its recent acquisitions, Plug Power (NASDAQ:PLUG) will become a key supplier of hydrogen fuel. With e-commerce exploding and hydrogen use poised to become widespread in some areas as a result of governments’ actions, Plug Power’s revenue from hydrogen will be quite substantial in the long-term. As a result, PLUG stock will likely outperform the stock market.
As I noted in my first column on Plug Power, published in January, fuel cells are a cheaper means of powering material-handling vehicles used in e-commerce warehouses, such as forklifts, than batteries, which traditionally are used to power such equipment. And as e-commerce explodes, the number of warehouses is jumping tremendously.
As a result, switching to powering material-handling vehicles with hydrogen will save retailers a great deal of money.
By acquiring United Hydrogen Group and Giner ELX last month, Plug Power has increased its ability to cash in on this trend. United Hydrogen produces hydrogen, while Giner “developed one of the world’s largest electrolysis hydrogen generators and other technology that can be used for on-site refueling of hydrogen fuel cells,” according to TheStreet.
Following its acquisition of United Hydrogen, Plug Power will be able to make ten tons of hydrogen per day, up from 6.4 tons previously.
I believe that Plug Power will be able to greatly expand United Hydrogen’s capacity by increasing the size of its current plant in Tennessee and building similar facilities in other parts of the country, as well as in Europe. The fact that United Hydrogen can produce “green” hydrogen will help Plug Power sell more of its fuel.
Finally, Plug Power will be able to sell Giner’s generators to retailers around the world for use in their e-commerce warehouses.
A Closer Look at PLUG Stock
Regulatory moves by California and Europe are going to lead to hydrogen-fueled trucks becoming much more widespread in those jurisdictions.
Specifically, last month California’s Air Resources Board “ordered manufacturers of medium-duty and heavy-duty commercial trucks to begin selling zero-emission versions in 2024, with 100,000 sold in California by 2030 and 300,000 by 2035,” according to The LA Times. The board is looking to take steps to boost demand for such vehicles.
As I’ve pointed out in the past, battery-powered trucks consume very large amounts of electricity and require huge batteries to travel just 250 miles. Hydrogen fuel cells do not require huge amounts of electricity and are meaningfully smaller than batteries.
Moreover, as I also previously noted, fuel cell-powered trucks can travel a much longer distance than battery-powered trucks with a power source of the same weight. Therefore, most of the zero-emission trucks sold in California are likely to be powered by hydrogen fuel cells.
Meanwhile, earlier this month, the EU called hydrogen an essential tool for helping the bloc meet its long-term carbon reduction goals. It also declared the fuel, ” a key priority to achieve the European Green Deal and Europe’s clean energy transition.”
The EU stated that 14 nations within its borders have already taken steps to increase their use of hydrogen, and the bloc said that it would seek to “turn clean hydrogen into a viable solution to decarbonize different sectors over time.”
The EU wants its countries to generate at least six gigawatts of renewable hydrogen by 2024 and at least 40 gigawatts by 2030. Clearly, the bloc is greatly prioritizing hydrogen and will facilitate the fuel’s use within its borders.
To capitalize on this trend, I believe that Plug Power will build green hydrogen-generating plants that use United Hydrogen’s methods in Europe and sell Giner’s products on the continent.
Large Companies Will Use Hydrogen
Plug Power has indicated that a number of its largest customers are interested in adding hydrogen trucks that the company is helping to build. Further, Anheuser Busch (NYSE:BUD) has ordered up to 800 hydrogen trucks from Nikola (NASDAQ:NKLA).
And UPS (NYSE:UPS) intends to utilize three of Toyota’s (NYSE:TM) fuel-cell trucks. Toyota, by the way, indicated that it sees meaningful demand for the fuel-cell vehicles it plans to build in California, and the company suggested that it would manufacture and sell a meaningful number of the vehicles by 2025.
As I’ve stated in the past, I believe that many companies will look to boost their environmental credentials by acquiring and using hydrogen trucks. That trend is likely to accelerate as hydrogen and renewable energy become cheaper. Plug Power’s acquisitions leave it well-positioned to benefit from companies’ increased utilization of hydrogen.
The Bottom Line on PLUG Stock
With moves by California and Europe likely to greatly boost hydrogen consumption within their borders and e-commerce exploding, I think Plug Power will benefit a great deal from its recent acquisitions.
Consequently, I expect Plug Power to easily meet and possibly exceed its goal of generating $210 million of operating income by 2024. PLUG stock currently has a market cap of $3.09 billion, just 14 times the firm’s projected 2024 operating income. As a result, the shares are definitely still worth buying at this point.
As of this writing, Larry Ramer owned shares of PLUG stock. Larry Ramer 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 solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer