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Why Plug Power (PLUG) Will Power Through Thursday

NEW YORK (TheStreet) -- Micro-cap Plug Power (PLUG - Get Report) soared 60.6% to $1.27 on Wednesday and early morning trading on Thursday reveals it hasn't run out of juice yet. The company, which develops modern fuel cell technology, is in hot demand after management provided a positive business update during a conference call.

By the end of the fourth quarter ended in December, the company said it expects to book between $30 and $40 million in revenue, far exceeding the $1 million achieved in the year through to April. The boost in sales will be the result of several deals expected to close shortly with some of its largest customers. Management said the new business will allow the company to turn a profit next year, the first time since its initial public offering in 1999.

"We expect a deal to be signed soon for 3 to 6 sites, which would include 750 to 1,500 units. These units will be deployed over a 2-year period, include a 5-year service agreement, and ... provide recurring revenue stream, not only for service, but for hydrogen infrastructure and hydrogen. A typical turnkey deal that Plug Power will provide will generate between $8 million to $12 million in revenues," said CEO Andrew J. Marsh during the company's end-of-year conference on Wednesday.

The Latham, N.Y.-based business said in an accompanying statement that it needs to ship 3,000 units in 2014 to generate earnings before interest, taxes, depreciation and amortization to break even. Marsh said its facility currently has the resources to manufacture 10,000 units a year and generate $100 million in sales.

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Before the bell Thursday, shares had surged 9.5% to $1.39. Year to date, the stock has climbed 154%.

Despite the positive business update, TheStreet Ratings team remains bearish on Plug Power Inc with a "sell" rating and score of D-. The team has this to say about its recommendation:

"We rate Plug Power Inc (PLUG) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Electrical Equipment industry. The net income has significantly decreased by 54% when compared to the same quarter one year ago, falling from -$10.33 million to -$15.9 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Electrical Equipment industry and the overall market, Plug Power Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • PLUG, with its decline in revenue, underperformed when compared the industry average of 10.3%. Since the same quarter one year prior, revenues slightly dropped by 3.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • PLUG's debt-to-equity ratio of 0.85 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.21 is sturdy.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
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