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One option to reduce greenhouse gas emissions is to employ fuel cells. An engine from a Toyota Motor Mirai fuel-cell electric vehicle is shown above.
Bloomberg/Carla Gottgens
The hydrogen economy has the potential to assist the world transition away from carbon-based fossil fuels like oil and coal.
Connected Power
According to RBC, stock is one of the finest ways to play the shift. With a Buy rating and a $42 price target, analyst Joseph Spak initiated coverage of Plug Power (ticker: PLUG) on Wednesday. In early trading on Wednesday, Plug stock was up 0.4 percent at $34.21. Futures in the stock market
S&P 500 Index
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were unflattering.
Plug Power manufactures hydrogen-fueled fuel cells. When hydrogen is consumed or used in a fuel cell to generate energy, it does not produce carbon dioxide, the principal gas blamed for climate change. Plug Power’s main business is forklifts, but it wants to expand into other areas where their fuel cells could be used, such as heavy-duty trucking. Manufacturing electrolyzers and hydrogen are two more long-term priorities. By flowing electricity through water, electrolyzers can produce hydrogen and oxygen gas. If the electricity is created using renewable energy sources like solar, virtually no carbon dioxide is produced anywhere along the hydrogen value chain. In his commencement report, Spak noted, “Hydrogen is increasingly considered as a fundamental pillar of de-carbonization plans worldwide.” “We believe a multi-decade hydrogen transition is possible with enough investment and government support.” Plug Power will benefit from this. However, the stock already reflects a lot of positive news. The stock is valued at around 18 times Spak’s expected annual sales. “The market has used Plug as a proxy for the expansion of the hydrogen economy,” said Spak. “However, the rate of growth is tremendous, which helps explain the price.” His $42 price objective is based in part on a discounted cash flow model that forecasts cash flows far into the future, as well as a 35 times multiple on the $537 million in Ebitda he forecasts for 2025. Plug is expected to have a negative Ebitda (earnings before interest, taxes, depreciation, and amortization) in 2021 and an Ebitda of around $85 million in 2022. Plug is a popular company on Wall Street despite its lofty price. With the new Buy recommendation, two-thirds of analysts covering the stock, or 67 percent, rate the stock as a Buy. Stocks in the S&P 500 have an average Buy-rating ratio of around 55%. The average analyst price objective for the stock is at $45 per share, which is slightly higher than Spak’s forecast of $42. However, at around $35 per share, these figures suggest that investors have a lot of room to grow. Plug stock was up less than 1% year to date as of Wednesday’s trade, but it had gained 973 percent in 2020. To contact the editors at Barron’s, send an email to editors@barrons.com./n
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