This Fuel Cell Player Looks Well-Positioned for Long-Term Growth

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Sep 24, 2014

Plug Power (PLUG, Financial) is a fast-growing company that is tapping the growing market for fuel cells. The company's outlook appears to be bright as the fuel cell system maker has performed consistently better than expected over the last year and is expected to attain its break-even at the end of fiscal 2014 as orders are ramping up from various retailers such as Walmart (WMT, Financial). Also, its cost of production is expected to decline as it plans to start its own production.

Strong order inflow

Plug Power is expected to receive orders worth $150 million in the current fiscal 2014 for its fuel-cell-powered forklifts. In February, 2014 Plug Power has received the largest Genkey contracts from Walmart, for two years that has ordered 1,738 GenDrive units for its six North American distribution centers.

This two-year contract not only includes GenDrive but also Genkey solutions such as construction of GenFuel hydrogen, GenFuel Fueling infrastructure and multiyear contract for its GenCare maintenance service agreement at each station. Besides, the company offers a complete range of turnkey services for most of its customers to smoothen the process across the business operation as it replaces the lead acid batteries with hydrogen fuel cells.

With this impressive deal, the company solidifies its position as the premium global proton exchange member (PEM) fuel cell system provider. Plug Power is continuously working on the expertise and know-how technologies to comprehensively provide demonstrated performance to most of its clients across the region.

Gaining traction

In addition, Plug Power has also witnessed its orders getting increased to 275 from 100 from one of its clients BMW as BMW has increased its fleet of trucks, pallet trucks and forklifts that are powered by the Plug Power’s fuel cells. The company expects to get more and more such orders as the demand for fuel cell is rising regularly. Plug Power with Fuel Cell that uses the hydrogen and natural gas to produce electricity through a chemical reaction has lately observed that the demand for fuel cell will increase as most of the automobile companies are producing hybrid vehicles.

Based on these projects outlook, the U.S. Department of Energy and Federal Express has funded the company with $3 million for its 20 FedEx electric delivery truck that are to be deployed in the LA Basin.

However the company expects the revenue in the range of $16 million to $18 million and a negative EBITDA of $2 million to break-even for the ongoing quarter of fiscal 2014. However, Plug Power anticipates revenue of $70 million increase of 163.16%, almost doubled from $26.6 million revenue in 2013, for the full fiscal 2014. The company also intends to deliver positive EBITDA in the range of $1.5 million to $3 above 25% million for the full fiscal 2014 as compared to last year 2013.

Furthermore, the company forecasts that it will generate positive EBITDA in the third quarter to achieve EBITDA break-even followed by positive net income in the fourth quarter of fiscal 2014, as the company is planning to execute its outstanding warrants worth $4.5 million.

Enhancing its service

Plug Power has also enhances its GenCare service product line with its class 2 and class 3 GenDrive products, which will be shipped in fiscal 2014 that will improve reliability and easy field serviceability leading service margin improvement in the fiscal 2014.

Additionally, the company is planning to bring in newer models with improved features in the current fiscal 2014 that will certainly increase reliability as compared to its earlier models with shift in its product mix. The company also expects higher sales volume in this category as the demand for these renewed products is surging in the market.

Plug Power has also strategically initiated fuel unit volume service per technicians that will definitely reduce per unit labor cost. The company has also improved its embedded software and case diagnostic with its GenDrive units that will provide higher degree of diagnostic accuracy.

Conclusion

Plug Power is also testing most of its products in transport refrigeration units or TRU and air conditioner units that help keep fresh and frozen products cold. Hence the company sees untapped opportunity in the market with this respect and would like to capitalize on it with its diversified product line with strategic investment in the infrastructure to create value proposition for its customer across the region.

Thus, Plug Power is making a number of good moves to grow its business, which is why investors should consider buying this stock for the long run.