Plug Power (PLUG) has skyrocketed in the past week on the hopes of new orders to expand the companies forklift power solutions on the back of a deal with Walmart for an initial 6 turn key locations scheduled to move online by mid 2014. Investor enthusiasm has peaked and waned for the companies shares in a rapid move up from $6 in January up to $12 in early March with recent prices pinballing back and forth to around recent prices of $6.50.
At this moment of extreme volatility is is important to assess the big picture. The deployment by Plug Power's fuel cell forklifts to Wal-Mart was a multi year project come to fruition inside a market that PLUG enjoys 90% or greater market share. These dominant metrics are unlikely to fall in the near distant future. CEO Andy Marsh mentioned in his March 3rd Roth Conference presentation the interest Wal-mart suppliers have expressed in PLUG's product line, as Wal-mart is widely recognized as the global leader in retailing. When Wal-Mart they makes cost saving business decisions, it likely to carry weight with competitors and partners looking for an edge in a small margin business.
With the lone earnings estimate for PLUG slated for break even over the next 12 months and the industry opportunity of $20 billion or more in potential market share at stake, it is puzzling to see earnings estimates of only -11 cents for 2014 and 11 cents for 2015. However, Plug Power is underfollowed by the analyst community. PLUG has the opportunity to sign deals with large retailers to drive these earnings estimates higher and gain wider analyst following. One positive feature mentioned by Andy Marsh PLUG CEO at the 3/11 Roth Conference is the ability of PLUG to generate 35% of earnings are recurring revenue opportunities and expand into the refrigerated transport markets with Sysco and other food distributors.
It is very likely that forthcoming deals are not baked into the earnings estimates so it is a helpful exercise to modeling an aggressive earnings projection of breakeven for 2014, 20 cents for 2015 and 40 cents in 2016 EPS, assuming business can double over the next three years. Under this uber bullish scenario it may be very optimistic but within reach to model a price target of 50 times 2015 forward earnings or $20 by the end of 2015. This trajectory would give the company a $2 billion market cap in what the company hopes to grow into a $4 billion market opportunity they project in the upcoming years. Assuming a more muted but positive growth trajectory where PLUG only grows earnings from -11 cents per share in 2014 up to 15 cents per share in 2015 jumping to 25 cents per share in 2016, leaves us a profitable company experiencing 83% average earnings growth over 2015 and 2016. Under this model, we would feel comfortable paying a reasonable 40 times our 2016 estimate of .30 cents per share or $12 a share by January 2016, about 85% higher from current prices of around $6.50. Because these deals are not yet in place, we would review our price target for any changes in consensus estimates, or if new orders are announced in the coming months.
Foundry Stock Review and its contributors have no positions in Plug (PLUG) the security detailed in this blog as of publication at 3:30 pm on 3/11/2014. Periodically, Foundry Stock Review or its contributors may initiate a position in a stock covered in this blog. If we do initiate a position in any security we cover prior to publication, we will disclose the position here in our disclosure. This stock disclosure is not a recommendation to purchase or sell any security.
Foundry Stock Review is an earnings focused investment newsletter. Foundry Stock Review, LLC is not a registered investment advisor and the data contained in this newsletter has been gathered from external sources and is believed to be accurate as of publication. The content of this blog is for information purposes only and is not a solicitation to buy or sell any individual securities. It is important that you consult with your investment advisor and tax advisor before making investment decisions. Past performance is not indicative of future results
Copyright © 2014 Foundry Stock Review, LLC All rights reserved