Plug Power (NASDAQ:PLUG) is continuing to take steps that further extend its first-mover advantage in multiple aspects of the hydrogen ecosystem. Meanwhile, multiple governments are looking to implement new programs that will promote the use of hydrogen. As a result of these developments, I remain very bullish on PLUG stock.
Also making the shares more attractive is the company’s positive outlook on two of its newer businesses: electrolyzers and green hydrogen.
Extending the First-Mover Advantage
Last month, Plug Power completed its acquisition of Frames Group, a European-based engineering, design and manufacturing company. On Plug Power’s third-quarter earnings conference call, held on Nov. 9, CEO Andy Marsh stated that Frames would help Plug Power develop and build huge electrolyzer factories. Used to make hydrogen fuel, electrolyzers are becoming a key product for Plug Power.
With its expertise in wastewater and offshore projects, Frame will also help Plug Power utilize ocean water and wastewater, as well as develop “offshore electrolyzers,” Marsh explained. Finally, Frames will extend Plug Power’s presence in Europe, where, the use of hydrogen is poised to grow quite rapidly.
Speaking of Europe, Plug announced on Nov. 30 that it had completed the launch of a joint venture with Spanish renewable energy project developer and operator ACCIONA Energía. The venture will ” develop, operate, and maintain green hydrogen projects throughout Spain and Portugal. ”
Finally, Plug Power launched a new project in South Korea, another place where the outlook of hydrogen is quite promising, for reasons that I’ll explain below. On Dec. 16, Plug Power stated that it had made a deal with Korean EV maker Edison Motors to develop hydrogen-powered buses.
Plug Power is also partnering with South Korean conglomerate SK Group, which has made a $1.6 billion investment in Plug.
Government Policies Are Getting Even Friendlier
The infrastructure framework signed by President Joe Biden in November included many provisions meant to facilitate the increased use of hydrogen in the U.S. Most importantly, the legislation appropriated the significant sum of $8 billion to launch “at least four clean hydrogen hubs across the United States,” The National Law Review reported on Nov. 18. The hubs are supposed to promote “the production, processing, delivery, storage, and end-use of clean hydrogen.”
As I noted in a recent, past column, the modified version of the Democratic budget plan that will probably be passed will likely include support for hydrogen. That’s because the Senate’s “swing vote,” Joe Manchin, is a hydrogen backer.
Meanwhile, ” California is building 100 hydrogen fueling stations around the state,” and new, pro-hydrogen measures are being considered by the EU.
And the South Korean government appears to be a huge supporter of hydrogen. Among other initiatives, it wants to develop ” 750,000 tons of carbon dioxide-free clean blue hydrogen by 2030,” subsidize “renewable hydrogen” projects, and “secure more than 40 hydrogen supply chains by 2050,” Business Standard reported at the end of November.
The CEO Is Very Upbeat on Plug’s Emerging Businesses
In 2023, the company’s electrolyzer business will generate more revenue than its core material-handling unit, Marsh, Plug’s CEO reported. And in 2024, its sales of green hydrogen will also eclipse those of its material-handling unit, he predicted. In other words, the relatively new electrolyzer and green hydrogen units are growing extremely rapidly.
Moreover, “green hydrogen will become quite profitable for Plug Power,” Marsh stated. Sanjay Shrestha, the company’s Chief Strategy Officer, expanded on that point, expanded on that point, predicting that the gross margins from green hydrogen would “approach” 0% next year before reaching approximately 30% in 2024.
Overall, the company says that it can lower its ” service costs on a per unit basis
by 30% in the next 12 months and 45% by the end of 2023.” Given the vast improvements in costs and margins that the company is targeting, I expect it to generate meaningful profits and positive cash flow by the end of 2023 ,if not sooner.
The Bottom Line on PLUG Stock
Plug Power’s new deals and partnerships, along with governments’ enhanced support for hydrogen will greatly improve its financial results over the longer term.
Meanwhile, its new businesses are already poised to grow rapidly, while its margins are likely to greatly improve.
Given these points, I continue to recommend that long-term investors buy PLUG stock.
On the date of publication, Larry Ramer held a long position in PLUG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.