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Why Shares of Plug Power, FuelCell Energy, and Ballard Power Systems Are Charging Higher This Week

Motley Fool - Fri Jul 14, 2023

What happened

Hydrogen related stocks are having a week. Shares of Plug Power(NASDAQ: PLUG) are powering higher as are FuelCell Energy(NASDAQ: FCEL) and Ballard Power Systems(NASDAQ: BLDP) for a variety of reasons. In addition to Plug Power announcing a new deal and receiving favorable coverage from an analyst, positive news regarding the hydrogen industry writ large is helping to buoy the stocks higher.

From the close of trading last Friday to the end of Thursday's trading session, shares of Plug Power have soared 16.5%, while FuelCell Energy and Ballard Power Systems have risen 13.9% and 14.5%, respectively, according to data provided by S&P Global Market Intelligence.

So what

Plug stock got a jolt this week after the company announced two new supply deals for its electrolyzers with customers on two different continents. Announced on Wednesday, the first deal will have Plug supply two 5-megawatt electrolyzer systems to green hydrogen production facilities in Tasmania, Australia. With the help of Plug's electrolyzers, the facilities will have a daily production capacity of 4,200 kilograms. Yesterday, Plug announced that it has received another order: 100 megawatts of electrolyzers for a European oil and gas project. The company expects to deliver and install the electrolyzers in 2024.

Besides announcements of new orders, Wall Street is contributing to the market's enthusiasm for Plug's stock. A Northland analyst, Abhishek Sinha, upgraded Plug's stock to outperform from market perform, setting a $22 price target. Based on Thursday's closing price of $12.36, Sinha's price target implies upside of 78%. According to The Fly, Sinha predicated the price target on the belief that the company is on "a clear path to cash flow generation."

While FuelCell Energy and Ballard Power Systems didn't have encouraging news of their own to report, they likely benefited from news of Plug's deals as well as growing general interest in Europe for hydrogen solutions. On Thursday, the European Commission stated its intent to award about $4 billion to 41 low-carbon projects. According to hydrogen industry website Hydrogen Insight, over half of the projects "are dedicated to green hydrogen production, its derivatives such as methanol and ammonia, or scaling up electrolyzer and fuel-cell manufacturing."

Now what

With regard to Plug's announcements of its two projects, it's important to recognize that the company didn't report financial terms of the deals. Those who follow Plug closely know that this is par for the course. The company has frequently announced supply deals but fails to state how the orders will affect its financials. Investors, consequently, are often left wondering if the deals that Plug announces will have a material effect on its financials or if they're attempts to manage public relations.

In terms of the analyst's auspicious price target for Plug's stock, investors should take it with a heaping tablespoon of salt. Frequently, analysts on the Street have shorter investing horizons than the multiyear holding periods that long-term investors prefer. In addition, investors should be circumspect about Sinha's belief that Plug is headed toward positive cash-flow generation. Plug has proclaimed that it's on the verge of achieving positive cash flow in the past, and it hasn't occurred. Instead of blindly adopting the analyst's expectation, investors should monitor Plug's quarterly financial results for confirmation that it's making progress toward growing organic cash flow.

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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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