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Plug Power Drops as Morgan Stanley Sees Valuation Nearly Full

Morgan Stanley resumed coverage of Plug Power at neutral. It's bullish on the outlook but concerned that the current valuation is almost full.
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Shares of Plug Power  (PLUG) - Get Plug Power Inc. Report dropped Monday after Morgan Stanley analysts resumed coverage of the hydrogen fuel cell producer with an equal-weight rating on valuation concern.

Analyst Stephen Byrd says that the Latham, N.Y., company's stock price already reflects a significant portion of the expected rapid growth ahead of the company. 

"PLUG's product advantages, strong balance sheet, and strategic partnerships position the company well for the transition to a hydrogen economy," analyst Stephen Byrd said. 

"Even after forecasting double-digit revenue growth and strong margin expansion, we see modest stock-price upside." 

Read More: Plug Power to Restate Financials, Stock Plummets 

Byrd set a $35 price target on the company. Plug Power shares at last check were off 9.3% at $29.29. Plug Power shares are down 13% year to date but up by more than a factor of seven over the past 12 months.

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Plug Power has unveiled several strategic partnerships and has $5 billion in cash on its balance sheet, situating the company well, according to Byrd.  

Read More: Plug Power, Baker Hughes Back Hydrogen Investment Fund

Plug's main product is a fuel cell power system used by forklifts. Morgan Stanley expects the company to keep expanding to serve multiple new markets, notably transportation. 

"Even after modeling in double-digit revenue growth through 2050 and significant margin expansion, our discounted cash flow analysis results in a modest 8% upside from current levels," Byrd said.

The firm's price target implies multiples of 18 times 2023 enterprise value/sales and 0.6 times EV/sales growth. 

That estimate falls near the median of hydrogen comparatives on those metrics and "at a modest discount to early-stage U.S. fuel-cell [comparatives] as we see steeper margin improvements at peers."