On Tuesday, Piper Sandler adjusted its outlook on Plug Power Inc. (NASDAQ:PLUG), increasing the stock price target to $2.90 from $2.80, while keeping an Underweight rating on the stock. The firm acknowledges potential near-term positive catalysts for the company, such as a possible conditional loan from the Department of Energy and alterations to the 45V tax credit.
Despite the near-term potential, the outlook for Plug Power's financial performance throughout the year remains cautious. The company has indicated expectations of revenue growth for 2024, but Piper Sandler projects a decline. This forecast is based on anticipated changes within the material handling market as customers transition towards direct purchases, which could impact both revenues and margins.
Plug Power is expected to see some improvement in fueling margins in 2024 due to higher pricing strategies and the utilization of lower-cost internal hydrogen. Nevertheless, the firm anticipates that fuel margins will remain negative for the fiscal year 2024 due to existing legacy contracts. The same negative outlook is extended to power purchase agreements and service contracts.
The company's unrestricted cash burn is projected to improve year-over-year, from $2.0 billion to an estimated $0.9 billion before accounting for at-the-market (ATM) financing. This improvement is attributed to better inventory management, reductions in capital expenditures, and the release of restricted cash.
Still, the operations are still expected to be deeply unprofitable for the foreseeable future. Piper Sandler suggests that unless there are radical cost reductions, Plug Power may continue to rely on equity capital markets activities to fund operations, as Department of Energy funds are earmarked for capital expenditures and not cash flow from operations.
The firm reiterates its Underweight rating, signaling caution to investors.
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