Forklifts powered by Plug Power’s fuel cells move more than 25% of U.S. retail food.
Courtesy of Plug PowerWall Street discovered hydrogen this year. It has been around for 13 billion years, but the big bucks earmarked for green-energy projects, and a fresh craze for shares of companies aiming to make hydrogen-fueled trucks, have raised the investment profile of all things connected to this ubiquitous gas.
That includes shares of hydrogen fuel-cell makers such as Plug Power, Ballard Power Systems, and Bloom Energy, the first two of which are up fourfold in the past 12 months. Trading at more than 50 times future cash flow, the stocks look priced to disappoint.
Fueling the fuel-cell bubble is a growing consensus that hydrogen will provide green energy in places where solar and wind can’t, such as heavy transport, backup power, and industry. The European Union unveiled a plan this month to invest hundreds of billions of euros in technologies enabling it to get a substantial share of its energy from hydrogen by 2050. The news lifted the shares of big hydrogen-gas sellers Linde (ticker: LIN) and Air Products & Chemicals (APD), and it ignited a stampede into hydrogen pure plays Plug (PLUG), Ballard (BLDP), and Bloom (BE).
Read more: Electric Trucks Are the Future. The Stocks Are for the Bold
In the race to stop global warming, hydrogen power can’t arrive soon enough. But it could take a decade before environmentally friendly hydrogen is competitively priced with natural gas. Moreover, small companies are up against big players, including government-backed rivals in China and deep-pocketed manufacturers, such as Cummins (CMI).
A fuel cell is a battery-like device that combines hydrogen gas with oxygen to generate electricity that can power a forklift, train, or data center. The fuel cell’s only other outputs are heat and water, making it much cleaner than internal combustion. Most hydrogen today is made from natural gas in a process that emits carbon exhaust. To be a climate-change solution, hydrogen must be made in a carbon-neutral way.
Bubble, Bubble
Wall Street’s infatuation with hydrogen-powered trucks has inflated the shares of hydrogen gas sellers and fuel-cell makers. Smaller companies could face formidable competition, however.
* Adjusted. Last four quarters.
Source: Bloomberg
Industrial-gas suppliers Air Products and Air Liquide (AI.France) get about 24% and 10% of their revenue, respectively, from hydrogen. Linde gets about 5%. The hydrogen suppliers’ interim solution is to capture their carbon exhaust and sequester it underground, but the goal is to power most hydrogen production with solar or wind farms. These renewable energy sources will drive electrolyzers— devices that use electricity to separate water into hydrogen and oxygen, in a process that’s the reverse of a fuel cell.
Hydrogenomics
No earnings? No problem for fuel-cell makers, as governments talk of billions for green energy.
- 500
The number of gigawatts of renewable hydrogen electrolyzers that the European Union aspires to by 2050. - $302mil
Bloom Energy’s reported loss for 2019. - 2024
The year Plug Power could see its first reported profit.
On July 8, the EU announced a plan calling for Europe to have at least six gigawatts of renewable hydrogen electrolyzers by 2024, versus one gigawatt (a billion watts) of electrolyzers in the bloc today. By 2050, the EU aims for 500 gigawatts. China, Japan, and Korea also have ambitious hydrogen goals.
If the sort of government incentives and mandates that spawned industries in solar, wind, and electric cars come to hydrogen, it will be good for polar bears and electrolyzer makers, such as the New Power unit of Cummins, and European specialists like NEL (NEL.Norway) and ITM Power (ITM.UK), which have soldiered through years of modest sales and negative cash flow. Their stocks were neglected until hydrogen’s star started rising.
But fuel-cell stocks have shot highest, notwithstanding their history of losses. Bloom Energy shares doubled recently, to $18, on new hydrogen initiatives. Bloom reported revenue of $786 million in 2019 and lost $302 million, or $2.63 a share, after installing 450 megawatts of fuel cells and restating more than two years’ worth of previous results.
Bloom’s fuel cells run on natural gas. On July 15, the company announced a deal to supply a megawatt of hydrogen-powered fuel cells to Korea’s SK Group in 2022. Bloom also plans to introduce an electrolyzer next year, with no customer disclosed yet. “One reason we’re doing these pilots in Korea is because the government there has very aggressive timelines and standards,” says Ed Kim, Bloom’s director of strategic development.
Plug Power acquired a producer of liquid hydrogen and a maker of electrolyzers in June, which will allow it to capture the profit margin on hydrogen used by customers such as Walmart (WMT) and Amazon.com (AMZN) to run more than 40,000 forklifts powered by Plug fuel cells. These cells moved over 25% of the country’s retail food during the Covid-19 pandemic, says chief executive Andy Marsh. Plug posted $230 million in revenue last year, but lost $86 million, or 36 cents a share.
Plug Power’s vertical integration and a recent financing give Marsh confidence that it can grow annual revenue to $1.2 billion in 2024, with earnings before interest, taxes, depreciation, and amortization of at least $250 million. He expects Plug’s green hydrogen operations to become cost-competitive with bigger companies’ fossil-fueled assets.
Plug Power and other hydrogen upstarts are on the right road, but it is a long one. After Plug’s enterprise value doubled last month to $3.5 billion, Barclays Capital analyst Moses Sutton lowered his rating from the equivalent of a Buy to Hold. The Hydrogenie had granted investors’ wishes, Sutton said in a July 9 note, but Plug now trades at 10 times his estimated 2021 sales and 95 times his projected Ebitda. Expecting no profit before 2024, the analyst pronounced Plug fairly valued at $10 a share. It now changes hands around $9.
Write to Bill Alpert at william.alpert@barrons.com
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July 25, 2020 at 04:00AM
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Hydrogen Stocks Have Hit Bubble Territory - Barron's
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