Monday, December 11, 2023

Swelling Green Hydrogen Demand Can Fuel These 2 Stocks

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As green hydrogen demand gains momentum, stocks from different realms like Plug Power (NASDAQ:PLUG) and New Fortress Energy (NASDAQ:NFE) are expected to be among the biggest beneficiaries.

Fossil Fuel Demand Should Eventually Diminish

High fossil fuel prices may be a good thing for the planet. With fuel prices remaining relatively high, demand should soon start to wane, especially if the emergence of greener options coincides. Moreover, climate change is already slowly causing slowing demand for fossil fuels. Further, companies with high carbon emissions are under pressure from regulators to reduce their carbon footprint, leading them to look for greener patches, literally. These companies are from a wide range of sectors, from oil companies and steel makers to airlines and cars.

The U.S. also has a law in place, the Inflation Reduction Act, which provides monetary incentives for the production of renewable energy and related technologies in America. The law includes a tax credit of up to $3 per kilogram (kg) of green hydrogen for companies producing it. Following the new rule, Plug Power wasted no time making a deal with Amazon to supply it with about 10 million kgs of green hydrogen per year starting in 2025.

Green Hydrogen Can Lift Plug Power’s Profitability

Currently, green hydrogen costs around $5/kg. Given that Plug Power sells the gas to its clients like Amazon (NASDAQ: AMZN) and Walmart (NYSE:WMT) at $6/kg, the product will lift Plug Power’s profitability by more than two-fold, according to The Wall Street Journal, when accounting for the $3/kg tax credit.

For context, green hydrogen is hydrogen generated by splitting water by electrolysis. This process produces only hydrogen and oxygen, making some speculate that this is the “Fuel of the Future.” In this regard, Plug Power has been a frontrunner in the race to utilize hydrogen to run most of its business — making turnkey hydrogen fuel cells to power electric vehicles.

The company expects to churn out about 15,000 kilograms of liquid hydrogen per day from its first green hydrogen facility in Georgia, enough to power 10,000 forklifts or 300 trucks for a day. If the company succeeds, it may finally see profits for the first time since its inception in 1997.

Plug Power’s green hydrogen potential has kept the stock in investors’ minds despite a fair share of ups and downs over the years. Interestingly, funds managed by The Vanguard Group and BlackRock (NYSE:BLK), along with a $1.6 billion investment by South Korean conglomerate SK Group in early 2021, kept PLUG stock afloat. This institutional support can help power Plug Power’s stock, going forward.

Is PLUG Stock a Buy, According to Analysts?

On Wall Street, Plug Power has a Moderate Buy rating based on 12 Buys and five Holds. The average PLUG stock price target of $27.35 indicates upside potential of 62.5% over the next 12 months.

New Fortress Energy Can Cash in Too

One of the energy stocks that stand to gain from Plug Power’s success is New Fortress Energy. New Fortress provides energy infrastructure and development services, specializing in the fields of power, infrastructure, transportation, and liquefied natural gas (LNG). The company expects its green and blue hydrogen projects to progress impressively in the coming years.

The company teamed up with Plug Power last year to develop a 120 MW green hydrogen plant in Texas, which has room to be scaled up to 500 MW. The plant will use Plug’s proton exchange membrane electrolysis technology to generate more than 50 tons of green hydrogen a day.

“They’ve got a one-lap lead in a very, very competitive race,” said Wesley Edens, CEO of New Fortress Energy, indirectly explaining the reason behind choosing Plug Power’s equipment to achieve its green hydrogen ambition.

Needless to say, if Plug Power successfully generates the desired quantities of green hydrogen, New Fortress is also likely to gain.

Is NFE Stock a Buy, According to Analysts?

Wall Street is bullish on the stock, with a Strong Buy consensus rating based on three Buys and one Hold. The average NFE stock price target of $67.25 reflects 80.8% upside potential.

The Takeaway

Consulting firm Wood Mackenzie expects the global hydrogen market to more than triple by 2050, with nearly all of the growth coming from green hydrogen. This is a very encouraging outlook for companies looking to up their green hydrogen production. With a production system in place, Plug Power is already looking like a torchbearer. Also, basking in its glow will be New Fortress Energy, having partnered with Plug Power.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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