Plug Power Shares Have Great Long-Term Potential, But Are Vulnerable In The Short Term
Jan. 3, 2014 3:20 PM ET | About: PLUG, Includes: BLDP
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Fuel Cell industry pioneer Plug Power Inc. (PLUG) announced yesterday morning before the market-open that it received orders for its GenDrive® fuel cell power system in the just completed 4Q/2013 of approximately $32 mill. This is significant news given that it reported total sales orders of less than $12 mill. for the first three quarters in 2013, and its total revenue during that period was $17.3 mill. In fact, the order rate has been accelerating, with the company reporting $1 mill. in bookings between January 1st and May 15th, $11 mill. in bookings between May 15th and October 8th, $14 mill. in bookings between October 8th and November 14th, and approximately $18 mill. between November 14th and the end-of-the-year. Furthermore, CEO Andrew Marsh indicated in the conference call yesterday morning that, "we expect the first quarter of 2014 bookings to meet or exceed the fourth quarter of 2013."
We believe that Plug Power is at the beginning of a strong ramp-up, the proverbial hockey stick in revenue growth going forward. It has a strong customer list that includes leaders in its target markets, including Wal-Mart (WMT), Kroger (KR), Procter & Gamble (PG), Bridgestone (OTC:BRDCF), BMW, Ace Hardware, Sysco (SYY), CVS (CVS), Mercedes Benz, FedEx (FDX), Whole Foods (WFM), Lowes (LOW) and Coca-Cola (KO). These customers have multiple warehouses, distribution centers and manufacturing facilities, the target markets for its GenDrive® power units for forklifts. Currently Plug Power has approximately 4,500 of these units in operation at its customers facilities. However, its current customers alone have over 250,000 forklifts, leaving ample room for growth going forward. Even more significantly, the global market for forklifts is about $20 bill., with about 0.8 mill. forklifts in use in the U.S. alone.
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In its December 2013 business update presentation, Plug Power outlined how a turn-key multi-site deal with just one of its current customers could generate $8 to $12 mill. per site, and using the company's stated assumption that such a deal could include three to six sites with 750 to 1,500 units deployed over a two-year period, we end up with potential annual revenues from such a deal from just one customer being in the $20 mill. to $25 mill. range. The revenues include not just product revenue from the sale of the forklift, but also recurring hydrogen and service revenue streams. Plug Power currently has 23 customers listed on its website, and some of its customers, like Kroger and Wal-Mart, for instance, have 34 and 158 distribution centers respectively. The potential revenue stream from these customers alone, as they expand their implementation to multiple sites, should lend significant upside to its revenue stream going forward, and for the foreseeable future.
Plug Power's GenDrive® fuel cell power units command a leading 85% market share for fuel cell driven forklifts in the U.S., aided by a strong product line-up and a powerful value proposition. It offers a full suite of over 30 to 40 different products under three main platforms for the material handling market, including the Series 1000 for counterbalanced trucks, Series 2000 for reach trucks, and Series 3000 for rider pallet jacks (see figure). Also, as part of its turnkey operation, it provides multi-year parts and labor service, and the hydrogen supply needed for recharging the fuel cells, that account for about 25% of the total value of the turnkey contract.
(click to enlarge)
The value proposition of its GenDrive® fuel cell power system is strong. While the environmental benefits from using fuel cells are fairly obvious, it also has the added bonus of improving productivity and lowering operating costs. Unlike toxic lead acid batteries that have limited stored energy, its hydrogen fuel cells create electricity through an electrochemical process versus a traditional combustion based process, and they run continuously as long as fuel is provided, with the only byproducts being heat and water. While lead-acid batteries need changing every 8 hours or so, GenDrive® powered truck units can run up to three times as long, resulting in less worker downtime spent in replacing batteries. The GenDrive® system can be charged in as little as 90 seconds, and it has a smaller footprint so it frees up valuable commercial space. Also, the transition of a forklift from a traditional system to GenDrive® is designed to be seamless, as the GenDrive® suite units are built with comparable weight dimensions and connections. Furthermore, there are also governmental regulations that provide a monetary incentive in the form of a federal tax credit of 30% of the cost of the fuel cell units or up to $3,000 per kW, whichever is lower, that is currently set to expire at year-end in 2016.
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