Plug Power (NASDAQ:PLUG) stock has been absolutely on fire in 2020, with shares rising more than 320% year-to-date as Wall Street has grown more bullish than ever on the hydrogen market and, more specifically, Plug Power’s ability to be a leader in this emerging clean energy category.
Wall Street’s bullishness hasn’t wavered in recent weeks.
In late September, Bank of America released a bullish note on the hydrogen economy, saying that the market is on the cusp of a tipping point wherein it will turn into an $11 trillion clean energy category by 2050. A few days later, Morgan Stanley upgraded Plug Power stock to Overweight, while saying that the company has rapid growth potential in the booming hydrogen economy.
These two analyst teams aren’t wrong.
In fact, they’re spot on.
The clean energy wave is here. It’s going to sweep across global society over the next two decades. Hydrogen will be a critical building block of that clean energy revolution, and Plug Power is the best-in-breed hydrogen company in the world.
To that end, this rally in PLUG stock is far from over. Over the next several years, this company will sell a ton of hydrogen fuel cells into various different end-markets, revenues and profits will boom and PLUG stock will soar towards $35 — implying more than 150% upside potential.
Clean Energy Is the Future
The clean energy wave has arrived, and it’s not going anywhere anytime soon.
Back in 2000, renewable energy — like solar, wind and hydroelectric — accounted for just 9% of U.S. electricity generation. That share rose to 17% in 2019, and is on track to eclipse 20% within the next few years.
Why the huge growth? Robust uptake of wind and solar power, which — in terms of electricity generation in the U.S. — have grown by 23% per year and 30% per year, respectively, since 2000, while overall electricity generation has grown at just a 0.4% annualized clip.
This huge growth has been driven by three things:
- Increasing government support. The U.S. government has handed out tax credits for the deployment of wind and solar energy in order to promote clean energy adoption, while certain governments — like California — are requiring that all new homes be built with solar panels.
- Shifting consumer demand. A new generation of consumers, increasingly aware of the impacts of global warming, are increasingly considering clean energy sources. More than half of U.S. homeowners have either already installed or are seriously considering installing solar panels.
- Falling renewables energy cost. Thanks to technological improvements, efficiency enhancements and economies of scale, the cost to install solar has dropped more than 70% over the last decade — and increasingly, we are starting to see renewables energy reach grid parity with fossil fuels in terms of production and installation cost.
None of these trends are going to reverse course. Pro-green legislature — like the stuff you are seeing in California — will become the norm across the U.S. over the next few years. Consumers will increasingly demand clean energy sources as they look to combat climate change. And continued technological improvements coupled with increased scale will drive renewables energy costs lower, and lower, and lower.
Big picture: The Clean Energy revolution has arrived, and it’s going to dramatically change our world (for the better) over the next decade. Of course, this is great news for clean energy stocks like PLUG stock.
Hydrogen Is an Important Part of that Future
Hydrogen is a very important piece of the clean energy revolution, especially when it comes creating a new generation of clean transportation.
The status quo in the clean transportation market today is battery electricity. But the future of clean transportation won’t be entirely built on battery electricity. It will be built on a combination of battery electricity and hydrogen — because each offers unique advantages in different situations.
For example, battery electricity beats hydrogen when it comes to cost, efficiency, safety and public roads infrastructure. To that extent, battery electricity will likely be the dominant clean energy source for passenger cars, last-mile delivery vans and aircraft.
But, hydrogen beats battery electricity when it comes to range, recharging times and emissions. So, in heavy-usage and long-range situations, hydrogen is the better renewable energy source. To that extent, hydrogen will likely be the dominant clean energy source for industry, cross-country haul and stationary.
Thus, while EVs are getting all the hype today because the clean energy wave has emerged in the passenger car market first (where battery electricity beats hydrogen), hydrogen fuel cells will start to receive a bunch of hype over the next decade as the clean energy waves proliferates into the industry, cross-country haul and stationary end-markets.
Leading that proliferation will be Plug Power and PLUG stock.
Plug Power Is Leading the Application of Hydrogen
Plug Power is — for all intents and purpose — the leader of the hydrogen economy.
This company got its start by applying its advanced hydrogen fuel cell technology into the end-market where that tech adds the most obvious value: Materials handling, or in other words, forklifts in warehouses.
Over the past several years, the materials handling industry has increasingly adopted hydrogen tech, because it is the most cost-effective and labor-efficient green energy solution. As the industry has pivoted towards hydrogen tech, many of the biggest warehouse operators — like Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN) — have partnered with Plug Power to provide the hydrogen fuel cells to power this new era of “clean” forklifts.
Over the next several years, every other warehouse operator in the world will follow in Walmart and Amazon’s footsteps, and go green with hydrogen forklifts. Many of them will choose Plug Power to help them do so.
But that’s really just the tip of the iceberg when it comes to the PLUG growth narrative.
The company has leveraged its expertise in creating HFCs for use in the materials handling industry, to launch new HFCs designed for use in other end-markets that could also benefit from hydrogen technology. This includes the 125kW ProGen and 30kW ProGen hydrogen engines. The former is designed for use in heavy-duty trucks. The latter is designed for use in delivery vans. It also includes the GenSure HP platform, which is designed to be a low-cost, clean energy alternative to power data centers.
At the same time, Plug Power has made multiple acquisitions — United Hydrogen and Giner ELX — to become a more vertically-integrated hydrogen company that controls the entire hydrogen energy life-cycle, from generation, liquefaction and distribution, to design, construction, and operation.
All in all, Plug Power is in the top of the first inning of turning into all-in-one hydrogen energy powerhouse — and becoming what may amount to the biggest hydrogen company in the world.
Big Upside Potential for Plug Power Stock
PLUG stock — although it is up 320% this year alone — is far from being maxed out.
After all, this is still just a $5 billion company, that is today fundamentally disrupting the $30 billion materials handling market with a best-in-breed solution, and which has potential to disrupt the combined $350 billion materials handling, automobile and large-scale stationary markets in the future.
To that end, this company has a lot growing left to do.
Indeed, my modeling implies that Plug Power will sustain 10%-plus revenue growth over the next decade, and that this big revenue growth will couple with margin expansion to drive 15%-plus profit growth.
Assuming so, my modeling suggests that $1.75 in earnings per share is doable for Plug Power by 2030. A 20-times forward earnings multiple on that implies a 2029 potential price target for PLUG stock of $35.
Bottom Line on PLUG Stock
The hydrogen economy is on the cusp of an enormous tipping point wherein hydrogen technology will be ubiquitously adopted in certain industrial end-markets, like cargo, long-haul delivery, data-centers and warehouses.
Plug Power is leading this hydrogen economy revolution, and as such, will be worth a lot more than just $5 billion one day.
So… stick with PLUG stock. In the long run, it’s only going higher. Way higher.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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