This year, the markets have witnessed the rise of fuel cell makers, some of whom nearly went bankrupt during the dot-com bubble of the 2000s.
Leading from the front is Plug Power (PLUG), which sells fuel cell systems for electric forklifts. Over the last 12 months, Plug Power has been the best performing stock on the Nasdaq.
The company was formed in 1997 and went public in 1999 at $15 per share. Amid the dot-com bubble and the hype surrounding the fuel-cell stocks, the company’s shares soared and rose to unbelievable heights, a little below $150 per share in the early 2000s. Consequently, the bubble burst and Plug Power’s stock crashed.
However, over the last 12 months, the company’s stock has skyrocketed once again, rising by more than 4,500%. But its shares are still trading at just $7.32, well below its IPO price.
This time, Plug Power’s future prospects aren’t misplaced. The company has acquired a fuel-cell stack maker and has received a number of new orders, including a record order from Wal-Mart (WMT) and an automaker. Moreover, Plug Power is also eying entry into new areas. As a result, the company, which has so far consistently reported losses, is eyeing profitability by the end of the current year.
The company is hosting a conference call today to discuss business updates. The markets are expecting positive commentary which has caused a more than 4% surge in its shares in pre-market trading.
Plug Power is buying the fuel-cell stack maker ReliOn Inc. for $4 million in an effort to diversify its supplier base. The company currently relies on Ballard Power (BLDP) as its only supplier of fuel cell stacks.
With this acquisition, Plug Power heads into the stationary back-up fuel cell market where ReliOn has been serving its customers such as AT&T (T), Sprint (S) and Verizon Communication (VZ). Moreover, the acquisition will be accretive to the company’s earnings in 2015 and will add 34 U.S. fuel cell patents to its current count of more than 150 patents on fuel design, processing and storage.
For the current year, however, the acquisition will generate a loss of $1 million before interest, taxes, depreciation and amortization, and stock-based compensation.
So far, in 2014, Plug Power has already received orders of more than $60 million. During the full fiscal year, Plug Power is expecting orders from fuel cell-powered forklifts of $150 million; that is nearly four times as large as last year.
The electric forklift is an enormous market which promises a huge opportunity for growth. Last year, more than 100,000 electric forklifts were shipped in the U.S. This alone represents potential revenues of more than $2.5 billion, more than twice as large as Plug Power's current market cap. Overall, the North American material handling market is valued at $4 billion – and when it comes to fuel cell powered vehicles, Plug Power is the market leader in this niche.
In February, Plug Power’s soared when it announced its largest order ever from a single customer. The company would supply more than 1,700 GenDrive fuel cells, along with fueling and infrastructure services to six North American distribution centers of Wal-Mart. Plug Power will start deploying its units and services from the second quarter of the current year.
Before that, in January, Plug Power announced its deal with FedEx (FDX) to manufacture hydrogen fuel cell extenders for 20 trucks of the courier delivery company. This project, valued at $3 million, will be funded by the U.S. Department of Energy.
Moreover, during the fourth quarter conference call, Plug Power’s management also announced that they have received their first order from a leading automaker. Plug Power has not divulged the details of the deal or the name of the automaker (although rumors had pointed towards Volkswagen which were later denied by the German company), but the fact that the company managed to secure a contract with a leading vehicles manufacturer has significantly raised the company's future growth prospects.
Entering New Areas
While Plug Power mainly serves the forklifts market, the company’s long-term aim is to power the entire ecosystem of industrial products from its fuel cells. In line with this strategy, Plug Power is stepping into new areas. The company is eyeing entry into the airport support vehicles and refrigerated delivery trucks markets.
The company is currently working closely with the largest American food distributor Sysco Corp (SYY) and other customers to develop fuel cell powered refrigerated food trucks. Similarly, the management believes that the airport support vehicle owners can also avail the same advantages of running fuel cell powered machines as the forklift owners.
History of Losses
Investors should note that fuel cell makers have struggled with profitability. Plug Power itself has been unprofitable since its inception. Similarly, Ballard Power also has a long history of losses that spans over two decades.
All of this, however, can change in the near future. Ballard Power is expecting a profit while Power Plug has forecast breakeven in the third quarter and profitability by the end of the year.
In its previous quarterly results, Plug Power’s revenues climbed 35.6% from last year to $8 million as it narrowed its operating losses by 16.5% to $7.9 million The company’s adjusted losses fell to $0.08 per share from $0.25 per share in the prior year. The company managed to beat analyst' revenue estimate of $7.4 million while earnings came in-line.
Disclosure: This article was written by Sarfaraz A. Khan, with valuable contribution from Gohar Yousuf, research assistant at Half Bridge Business Review. Neither Sarfaraz A. Khan, nor Gohar Yousuf have any positions in the stock(s) mentioned in this article.