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

Plug Power Inc. PLUG shares ultimately lost ground Friday following the release of second-quarter results by the hydrogen fuel cell energy company.

Here's what the sell side has to say. 

The Plug Power Analysts: RBC Capital Markets analyst Joseph Spak maintained an Outperform rating on Plug Power shares and reduced the price target from $42 to $35.

Barclays analyst Moses Sutton maintained an Underweight rating and $27 price target.

Roth Capital analyst Craig Irwin maintained a Buy rating and lowered the price target from $55 to $45.
Margin Pressure Temporary, RBC Says: Plug Power reported second-quarter gross billings of $126 million, up 75% year-over-year, ahead of the $115-million guidance, RBC analyst Spak said.

Despite the better-than-expected topline, gross profit was negative $40 million, the analyst noted. The weakness was due to fuel margins, dragged by a $31-million headwind associated with switching industrial gas suppliers, he said. 

The second quarter will likely be the low point for fuel margins given the additional capacity already online, Spak said. The segment is likely to be on path to positive gross margin in 2022, the analyst said.

Plug Power raised its gross billings guidance from $475 million to $500 million and expressed confidence in outer-year targets, setting the stage for a potential raise at the Oct. 14 Symposium, he said. 

The price target reduction, the analyst said, was due to a higher share count and a slight impact from a change in how RBC accounts for joint ventures.

Related Link: Why This Plug Power Analyst Is Bullish On Hydrogen Stock's Growth Potential

Barclays Cautious About Forward Margin Profile: Strength in Plug Power's revenues and topline guidance is driving stock strength, analyst Sutton said.

Strength in the company's MH segment highlights the increasing traction of its hydrogen forklifts, the analyst said. Electrolyzers are gaining steam, he said. 

The management signaled a fifth pedestal customer, which will contribute $25 million in revenue in the second half and $50 million in revenue on an annualized basis, Sutton said. 

"Even amid a surge in MH revenues, PLUG's profitability remains consistently and firmly negative - an uneven position given ambitious plans to expand across new verticals of the hydrogen value chain," the analyst said. 

In those areas, margins prove more elusive for the long-term project economics, he said. 

Barclays said it remains cautious around the forward margin profile, as Plug Power faces execution risk in existing and developing business units.

"Nevertheless, we reiterate our view that investors should underweight PLUG-not actively short, given stock performance is clearly tethered to one-off headlines." 

2021 A Good Year For Investment, Roth Says: Gross margins of negative 32% were greatly impacted by force majeure supplier shutdowns, a terminated fuel agreement and other COVID-19 related headwinds that drove over $35 million in related expenses, Roth analyst Irwin said.

Plug Power's management indicated the vendor transition accounted for two thirds of the second quarter's increased fuel costs, the analyst said. 

"Looking past transitory force majeure events, we expect details at the Oct 14th company symposium broadly affirm impressive demand from a range of Tier-1 customers that supports higher long-term forecasts," he said. 

The year 2021, the analyst said, is a good year for investment.

Roth said the stock is currently fairly valued. The firm expects the stock to continue trading off datapoints confirming an expanding longer-term business model.

PLUG Price Action: Plug Power shares ended Friday's session down 0.38% at $25.90. 

Related Link: Why BTIG Is Bullish On Plug Power, Nikola

Photo: a Plug Power hydrogen delivery truck.