Plug Power’s latest earnings report didn’t go well. And the company looks in dire need of good news on an expected government tax credit and potential loan to turn its fortunes around.
On Thursday evening, the stock tumbled after the hydrogen-technology company issued a warning over its financial position in its third-quarter earnings release.
Plug
(ticker: PLUG) shares were down 43% on Friday, falling to $3.39 while the
S&P 500
rose 0.9% and the
Nasdaq Composite
rose 1.3%. Plug shares last declined so steeply more than nine years ago, when they dropped almost 42% on March 11, 2014.
For the quarter, Plug reported about $200 million in sales, not too far off what Wall Street expected. Results through the first nine months of the year leave about $500 million needed in sales for the fourth quarter for Plug to hit its full-year sales forecast of between $1.2 billion and $1.4 billion.
Fear about a weak fourth quarter isn’t what is driving the stock down by a third though. Plug added it was hit by “unprecedented supply challenges” causing hydrogen shortages, while also being squeezed by inflationary costs. While Plug expects the supply issue to ease toward the end of the year, the immediate concern is its need for additional funding.
The company included a going-concern warning in its third-quarter report. Going-concern language “is warranted when there is substantial doubt the company can continue to conduct its normal business operations in the foreseeable future without having to liquidate a portion of its assets and/or restructure its obligations,” explains accounting expert Robert Willens.
RBC Capital Markets analyst Chris Dendrinos estimated Plug could need an additional $750 million or more to boost its liquidity over the next 12 months. Dendrinos lowered his target price on the stock to $5 from $12 and his rating to Hold from Buy.
“[Plug] management expressed confidence in executing a liquidity transaction near-term and continues to see a path for margin improvement through next year. However, at this time we think it prudent to move to the sidelines and await execution of these events,” Dendrinos wrote.
Canaccord analyst George Gianarikas kept his Hold rating on shares but cut his price target to $5 from $10. He pointed out in a Thursday report that many companies he follows have experienced similar supply-chain problems. “We, nevertheless, await additional profitability proof points, stabilization in operations, and additional guidance from [the] Treasury before turning more positive on the stock.”
Plug is pursuing a potential loan from the Department of Energy that could be worth $1.5 billion, as well as looking at corporate debt and partnership deals to boost its finances.
Plug is also waiting on guidance about a planned tax credit for hydrogen production in the U.S. Expectations of government support for the hydrogen industry have been a reason for optimism for some analysts, but Plug could do with good news sooner rather than later.
KeyBanc analyst Sangita Jain cautioned that even if the DOE loan is approved, it likely won’t come soon enough to relieve short-term liquidity concerns. That means the company could face tougher financing costs in the meantime.
Jain has a Sector Weight rating on the stock and target for the price.
Coming into Friday trading, Plug shares were already down about 65% over the past 12 months. Barron’s wrote about the tricky outlook for hydrogen stocks earlier this year, noting the long timeline for green-hydrogen production to reach significant scale.
Write to Adam Clark at [email protected]
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