Ballard Power (BLDP) May Have Given Some Concessions in Plug Power (PLUG) Deal - Cowen

Cowen and Company affirms Ballard Power (Nasdaq: BLDP) at Market Perform with a price target of $4 following news that the company entered a long term supply agreement with Plug Power to provide fuel cell stacks for use in GenDrive systems deployed in forklift trucks.

Analyst Jeffrey Osborne commented, We certainly view this deal as a positive for Ballard Power given the improved revenue visibility. Fuel cell powered forklifts are one of the few places in the fuel cell industry that has seen success with commercialization in 2013/2014. We expect very healthy growth from PlugPower (Outperform, $4.55) in the coming quarters as Walmart distribution sites are built out. The existing supply deal was scheduled to expire at year-end and we had originally felt that PlugPower would attempt to bring some of the fuel cell technology development efforts in-house given efforts with Air Liquide and the ReliOn acquisition so this deal certainly removes an overhang for Ballard Power investors in our view.

From a Ballard perspective, we continue to see the bulk of the EBITDA improvement the company has seen in recent quarters emanating from the Volkswagen and Azure Hydrogen development contracts versus actual product sales to the materials handling and telecom markets. We estimate that development contracts are 4-5x more profitable than actual product sales for the company. Materials handling (i.e. Plug Power shipments) have made up 10-25% of quarterly revenue in recent quarters which is a trend we expect to continue given PlugPower's backlog. This renewed contract gives us more comfort in our unchanged estimates for 2015 and 2016 where our bottoms up model has 10% and 12% of revenue respectively stemming from the materials handling market place. Given the deal takes place immediately, we look for more commentary from management on the margin trajectory, especially as the new CEO Randy MacEwen who just started this week takes the helm.

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

Ballard Power Systems closed at $2.97 yesterday.

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