Cowen Remains Positive on Plug Power (PLUG), but Margins Need to Show Improvement

Cowen and Company lowers its price target on Plug Power (Nasdaq: PLUG) from $4 to $3.50 following Q4 results and outlook issued earlier in the week. The firm retains its Outperform rating.

Analyst Jeffrey Osborne offered the following commentary: During Q4, fundamentals were primarily hit by a one-time litigation-related expense,previously discussed, and more importantly lagging gross margin improvements in the service segment and a lower product ASP. We estimate that the ASP per unit was ~$12/12.5 thousand, which is significantly below prior averages around $18-$20 thousand. However, management noted that 238 units in Q4 were part of a sale-leaseback structure that affected revenue, a selling model of which it does not expect to apply for the majority of customers going forward.

Service gross margin continues to lag at a materially negative rate around (35%), though management mapped out its long-term strategy to eventually reach a stable positive rate. Reliability and efficiency of in-service units continues to increase, currently exhibiting 98% up time.

Osborne also opined on the outlook for PLUG: Despite a challenging Q4, Plug Power has continued its upward trend in selling more units, expanding the presence and scope of its GenFuel offering, maintaining and expanding its relationship with WalMart and other key customers, and making headway on its internally-developed products, such as the ReliOn fuel cell stack. We are, however, somewhat concerned with service gross margin and overhead trends and are slightly reducing our EPS estimates for 2015 and 2016 accordingly.

We are lowering our previous 5x 2015 EV/Sales multiple to ~4.5x, due to delays in executing on margin improvement.

For an analyst ratings summary and ratings history on Plug Power click here. For more ratings news on Plug Power click here.

Plug Power closed at $2.61 yesterday.

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