It is part industrial, part tech. It does not sell a sexy new product, it is in the forklift and material handling market. The key is, its fuel cell technology and turnkey offering, cuts costs, emissions and provides more rapid refueling for its clients.
That cuts down the amount of equipment they need to maintain. Plug has contracts with a few dozen large firms, including little companies like Wal-mart, and still has a lot of room to expand. It has only penetrated 2% of its current US market and has a JV to expand into Europe this year and will probably announce similar plans for Asia. Sales are expected to more than double in 2015 and could do so again in 2015.
About Plug Power
Plug Power (NASDAQ: PLUG) is an alternative energy company focused on fuel cells. It designs and manufactures fuel cells systems for the industrial market, fork lift and material handling market in particular.
It utilizes proton exchange membrane (PEM) fuel cell and fuel cell processing technologies and full c ell/battery hybrid technologies. The company makes systems for class 1, 2 and 3 forklifts and rider pallet trucks. The systems allow for more rapid refueling and provide a steadier power supply while saving space and cutting emissions. The company offers a turnkey solution called GenKey and provides five-year maintenance contracts along with it called GenCare.
Plug Power focuses on A fuel cell which is an electrochemical device that combines hydrogen and oxygen to produce electricity and heat. The hydrogen comes from LPG, natural gas, propane, methanol, ethanol, gasoline or biofuels. The hydrogen can also be sourced from water through electrolysis.
Plug is developing new product offerings. With Sysco it is working on transport refrigeration units which should be deployed this year. It is also working on ground support equipment with FedEx at a major airport hub. These should lead to revenue in 2015 and beyond.
The company has three segments, food distribution, retail and manufacturing. Its customers include BMW, Mercedes, Ace Hardware, Walmart (NYSE: WMT), Ikea, Wegmans, Lowe’s (NYSE: LOW) and P&G. It is also working to develop its market in Europe through a joint venture with Air Liquide. It is also likely searching for a partner in its European market.
Other similar companies in the space include FuelCell Energy (NASDAQ: FCEL), Ballard Power (NASDAQ: BLDP) and Hydrogenics (NASDAQ: HYGS).
Consensus Forecast – Revenues expected to increase over 2x in 2015
The Street has forecast sales of $63.7 million in FY14 and $140 million in FY15 with the operating margin going from -14.9% to 16.4%, respectively. Current consensus earnings estimates are for -$0.11 per share in FY14 and $0.11 in FY15.
Recent Bookings Trends are Strong
Plug Power booked $32 million in orders in 4Q13 and had a book-to-bill of 4.1x, strong even for a high growth company early in its product cycle. The backlog was over $50 million at year-end with over 1,400 GenDrive units, service and fuel.
The total current backlog reported mid-month was for over 3,000 units so the dollar value likely double. The company booked its largest deal to date in a deal with Wal-mart. It also added another auto company during the first quarter. It has targeted bookings of $150 million for FY14, versus sales of $70 million. This makes hitting a $140 million sales forecast for FY15 very achievable making production levels and margins the biggest concern.
Margins are expected to expand with gross margins exceeding 30% by 4Q14. Better fixed cost absorption from higher volumes and global sourcing should lower costs. In addition, redesigning components should also help cut cost and improve the product. On the service side, the company is scaling and only break-even levels are expected. Training and other cost as it ramps this business will act as headwinds for much of the year.
Plug has an installed base of 250,000 material handling units and has only deployed its turnkey solution into about 2% of the base. The upside to turning on its current base plus growth into Europe and Asia is significant. In addition, Plug is developing new markets, such as refrigeration and should find additional opportunities in material handling and logistics.
Plug technology provides clear value to its customers and the demand is there. The challenge with any rapidly growing company is executing on its operations and managing the supply chain. While the stock is up and may be a bit expensive at these levels, investors should keep their eye on Plug and buy on any pull-backs.
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John has seven years of experience as an equity analyst following various stocks and sectors. As a senior equity analyst, he received awards from the Wall Street Journal and Financial Times for his writing.