Why Plug Power Analysts See A Margin Improvement Story With Outsized Growth Prospects

Plug Power Inc. (NASDAQ: PLUG) reported mixed quarterly results Tuesday. Here's what the Street had to say. 

The Plug Power Analysts: Morgan Stanley analyst Stephen Byrd maintained an Overweight rating and $43 price target on Plug Power shares.

H.C. Wainwright analyst Amit Dayal maintained a Buy rating and $78 price target.

Raymond James analyst Joseph Spak maintained an Outperform rating and increased the price target from $40 to $48.

Morgan Stanley On Plug Power's Path To Margin Improvement: The margin pressure experienced by the fuel service business is a transitory issue as the company ramps up production of its own hydrogen production facilities, Morgan Stanley analyst Byrd said.

The company expects to exit 2021 with 70 TPD of its own hydrogen production and reach breakeven margins by 2023, the analyst said. More importantly, the company expects fuel margin to be in line with the overall corporate target of an over 30% gross margin by 2024, he said. 

Plug Power also sees an improvement in service margin in 2022, the analyst said.

Thus, the company has a clear path to margin improvement, Byrd said.

The magnitude of upside to the 2022 guidance is surprising, the analyst said. Plug Power management's commentary regarding electrolyzers and green hydrogen production turning out to be a bigger contributor to revenue than material handling by 2023 suggests there could be upside to 2025 guidance, he said. 

Related Link: Why Plug Power's Top- And Bottom-Line Are Diverging

H.C. Wainwright's Key Plug Power Takeaways: The gross loss for the quarter was expected, and investors should continue to anticipate margins remaining under pressure for the next few quarters, analyst Dayal said.

Given that business momentum remains robust, the company could continue to adjust the 2022 guidance upwards, the analyst said.

The recent Frames acquisition should support the goal to reach an installed electrolyzer capacity of three gigawatts by 2025, he said. 

"From an operational perspective, one of the company's key goals for 2022 is to demonstrate margin improvements." 

This should come on the back of product cost downs, lowered service costs and higher fuel margins, with green hydrogen plants coming online in the second-half of 2022, Dayal said. 

The company's numerous recently formed partnerships such as Hyvia and the SK joint venture should also begin contributing to revenues and margins in 2023 and beyond, the analyst said. 

Plug Power Will Outperform Peers, RayJay Says: Costs weighed down on third-quarter margins, RayJay analyst Spak said. The analyst said he expects this to persists for a bit.

Plug Power shares, the analyst said, will outperform the peer group, as hydrogen is expected to play a key role in global decarbonization. The company is a leader in the fuel cell material handling market, he said. 

The company is also transforming into a one-stop, turnkey hydrogen solution, the analyst said.

Plug Power's rich valuation is justified, given the growth potential is significant, Spak said.

"Following recent capital raise and SK investment, we believe PLUG has enough capital to get to self-funding, which would be a major catalyst, in our view."

PLUG Price Action: Plug Power shares were trading 1.12% higher at $41.10 Wednesday morning. 

Related Link: Why This Plug Power Analyst Is Turning Bullish Ahead Of Investor Day