Plug Power has 'rapid growth potential,' Morgan Stanley says in upgrade

Published Mon, Sep 28 20209:37 AM EDTUpdated Mon, Sep 28 20204:07 PM EDT

(This story is for CNBC PRO subscribers only.) Plug Power is poised to continue outperforming as multiple growth opportunities driven by advancements in scale and technology propel shares higher, Morgan Stanley said in a note to clients Monday. The stock gained 13.3% on Monday following the bullish note. Morgan Stanley upgraded the stock to overweight from equal-weight, while also lifting its target on the fuel-cell maker to $14 from $10.25. The new target is 20% above where shares closed on Friday. "We now factor in a higher long-term (post-2024) growth rate, driven by our increased bullishness on PLUG's multiple addressable markets," Morgan Stanley analysts led by Stephen Byrd said. "We are increasing our projected 2024e PLUG revenue, from ~$1.2 billion to ~$1.3 billion, in part due to our increased confidence that PLUG can grow its vehicle fuel cell business," he added. Byrd pointed to three key reasons for investors to be bullish: green hydrogen will become economically viable faster than Wall Street thinks, Plug Power is equipped to use green hydrogen in products that serve large addressable markets, and the company is focused on building customer and partner relationships. Plug Power makes fuel cells for forklift power systems, among other things, and currently counts Amazon and Walmart as customers. The company has also announced that it will supply Linde with Class 6 and Class 8 fuel cell-powered long-haul trucks. Shares of Plug Power have skyrocketed 268% this year through Friday's close amid investor enthusiasm for clean energy. However, the company has been around for decades, and there has been great investor interest in the space in the past. The stock currently trades around $11.65 per share, down from an all-time high of $1,565 in Jan. 2000. But Morgan Stanley said the economics are starting to make sense as so-called green hydrogen — hydrogen made from renewable energy sources — becomes cheaper to manufacture amid a decline in the cost of wind and solar power. The firm pointed to Plug Power's partnership with utility scale wind and solar power company Apex Clean Energy as an upside catalyst since Plug Power will have access to low cost renewable power. "We believe that, if PLUG can generate green hydrogen at relatively low cost, its customers ... will likely adopt PLUG's fuel cell products even more rapidly given the zero carbon profile of fuel cells that use green hydrogen," Morgan Stanley said. The firm noted that the growing importance of ESG, or when a company is rated on environmental, social and governance factors, could also spur demand for Plug Power's products as companies look to reduce their carbon footprint. - CNBC's Michael Bloom contributed reporting. Don't miss CNBC and Institutional Investor's Delivering Alpha conference on September 30 , featuring Treasury Secretary Steven Mnuchin, Senator Elizabeth Warren, Alibaba's Joseph Tsai, Vista Equity Partners' Robert Smith, J.P. Morgan's Mary Callahan Erdoes, Inclusive Capital's Jeff Ubben and more.

In this illustration is displayed on a smartphone's screen the company logo of Plug Power, which specialises in design and manufacturing of hydrogen fuel cell systems, is shown on the screen of a smartphone in front of a blue backdrop of the global stock markets and worldwide indices in Frankfurt, Germany, on 12th June, 2020.

Alexander Pohl | NurPhoto | Getty Images

(This story is for CNBC PRO subscribers only.)

Plug Power is poised to continue outperforming as multiple growth opportunities driven by advancements in scale and technology propel shares higher, Morgan Stanley said in a note to clients Monday.

The stock gained 13.3% on Monday following the bullish note.