Despite losing support on Wall Street, one former bull still sees a potential path to success for hydrogen technology company, Plug Power (ticker: PLUG).
On Wednesday evening, Citi analyst Vikram Bagri downgraded the company's shares from Buy to Hold and lowered the target price from $12.50 to $5 per share.
As a result of the downgrade, shares of Plug Power dropped over 5% to $4.12 in early trading on Thursday. Meanwhile, the S&P 500 and Nasdaq Composite were down slightly at 0.1% and 0.2% respectively.
Bagri had initiated coverage in July with a Buy rating and an original target price of $13. However, the factors he believed would drive the shares higher, such as the new Georgia plant for hydrogen gas production, sales growth, and improved profit margins, have not materialized as expected.
In his analysis, Bagri highlighted the company's subpar execution, which has led to liquidity challenges. While there may be a narrow path out of these near-term issues, the margin for error remains small.
Plug Power's stock experienced a significant decline of 40% on November 10th after reporting third-quarter numbers that included a going concern warning. This warning signifies substantial doubt about the company's ability to continue its normal business operations without asset liquidation or obligation restructuring in the foreseeable future, according to accounting expert Robert Willens.
Plug's Need for More Funding
Plug, a company in need of additional funds, is facing a significant challenge. With approximately $930 million in liquidity, the company is projected to utilize around $500 million within the next half-year, according to Bagri's calculations. However, it is important to note that companies cannot deplete their cash balances entirely. As a result, Plug will have to raise more capital in 2024, with Bagri estimating this will occur no later than the third quarter of that year.
Implementing Secure Capital Controls
Bagri, an analyst, recommends that Plug consider raising money against accounts receivable, inventory, or restricted cash. This strategy would provide much-needed liquidity while the company works to resolve its current liquidity issues. Furthermore, he asserts that tight capital controls should be implemented throughout this challenging period.
A Way Forward
By following these steps, Plug can navigate its way towards a more stable financial position. Bagri suggests that the flow of funding from the Energy Department and reduced concerns over cash will alleviate some of the company's current worries.
A Cautionary Outlook
Despite a potential path forward, Bagri expresses more caution regarding the stock's performance today. With this update, it marks at least the seventh downgrade since the release of third-quarter earnings. Currently, approximately 41% of analysts covering Plug rate the shares as a Buy. Prior to the earnings report and going concern warning, roughly 65% rated the shares as Buy. It is worth noting that the average Buy-rating ratio for stocks in the S&P 500 stands at approximately 55%.
Analyst Price Target
The average analyst price target for Plug now sits at around $9 per share, down from its previous estimate of about $15 per share before the earnings report. As of Thursday trading, Plug stock has experienced a decline of approximately 75% over the past year.