Plug Power Earnings: Execution Challenges Continue; Lowering Fair Value Estimate to $11.50

We lower our fair value estimate for no-moat Plug Power PLUG to $11.50 per share from $14 following its second-quarter results. The primary driver of our decreased valuation is lower margins as we now expect a protracted margin ramp in the years ahead. We see shares as slightly undervalued following the share price selloff and we continue to view the company as a high-risk, high-reward investment on the green hydrogen economy.

Plug Power’s second-quarter results were headlined by continued margin challenges and delays in the startup of its green hydrogen plants. The company reiterated full-year revenue guidance but withdrew its prior gross margin guidance following a challenging first half of the year for margins. In addition, the company’s startup of its Georgia facility (its first green hydrogen plant) is progressing more slowly than anticipated and Plug delayed the timeline for its next round of plants by approximately six months.

Aside from Plug’s ongoing execution challenges, we see reasons for optimism in the coming months. The U.S. Treasury is expected to issue guidance on the green hydrogen production tax credit, likely in September. Recent media reports indicate a likely phasing of conditions to qualify for the credit, which we view as a positive for Plug, if true. Additionally, the company is progressing with various financing options, including a $1 billion Department of Energy loan, which could be executed late this year. Plug ended the quarter with approximately $2 billion in cash and investments after burning roughly $1 billion in cash in the first half of the year.

We originally saw 2023 as a year of margin inflection for Plug Power. However, continued execution challenges, notably with the startup of its green hydrogen network, leaves us now looking to 2024.