Plug Power's Expense Reduction Strategy Seems Necessary, But Analyst Cautions About Uncertain Impacts

Truist Securities analyst Jordan Levy reiterated a Hold rating on Plug Power, Inc. PLUG with an unchanged price target of $3.

Yesterday, the company said it plans to reduce annual operational expenses by $75 million through layoffs and supply chain optimizations. The company also plans to curtail discretionary spending and leverage automation to lower expenditures.

This mirrors management’s emphasis on cost reduction/cash burn control during the company’s recent annual update in January, with the firm targeting a 70% YoY reduction in cash burn during FY24, as the company previously stated going concern language in its recent third quarter filing.

The new expense reduction plan will include measures in operational consolidation and personnel adjustment, along with additional minor steps, and the company expects to incur a one-time $15 million charge from the proposal.

However, while the cost savings plan is likely a necessary step to help address near-term liquidity/outspend concerns, the analyst questioned the impact that it would have on timing for green H2 production facility startups – which remains a critical piece of the equation for Plug Power to improve fuel margins.

The analyst said that the $3 price forecast for the stock is derived by applying a P/S multiple of 1.5x to the 2025 sales estimate of $1.8 billion.

Going ahead, the analyst sees increased scale and vertical integration, which may result in expanded margins in several business lines.

However, if the execution falls short of expectations, this could represent a potential downside risk to estimates, Levy added.

Price Action: PLUG shares are trading lower by 3.43% to $4.08 on the last check Thursday.