investors are still reeling from the “going concern” warning included in the company’s third-quarter financial results on Thursday.
Plug stock (ticker: PLUG) was down 1.6% at $ 3.475 early Monday after dropping 41% on Friday. The
were off about 0.4% and 0.7%, respectively, on Monday.
Going concern warnings are significant. “A going concern opinion is warranted when there is substantial doubt the company can continue to conduct its normal business operations in the foreseeable future without having to liquidate a portion of its assets and/or restructure its obligations,” accounting expert Robert Willens tells Barron’s.
To erase that doubt, Plug likely will need more cash to fund its operations. RBC Capital Markets analyst Chris Dendrinos estimated Plug could need an additional $750 million or more to boost its liquidity over the next 12 months. Dendrinos lowered his rating on the stock to Hold from Buy and cut his target for the price to $5 from $12.
Plug used some $400 million in cash during the third quarter. Wall Street projects it will use roughly $900 million over the coming four quarters, according to FactSet. Plug ended the third quarter with about $1.6 billion in cash and investments on its books, but the company classifies about $1 billion of that as “restricted.”
Some of that cash is associated with prior lease deals and is released over the term of the leases. The company didn’t immediately respond to a request for comment about its restricted cash.
The warning prompted several downgrades and price target cuts. Monday, H.C. Wainwright analyst Amit Dayal lowered his price target to $18 from $27. He still rates shares Buy.
Overall, 45% of analysts covering the stock rate shares Buy, while the average Buy-rating ratio for stocks in the S&P 500 is about 55%. Before the Thursday report, about 65% of analysts rated shares at Buy.
The average analyst price target is at about $11 a share. Before Thursday, the price target was almost $15 a share.
Plug is trying to become a vertically integrated producer of green hydrogen—gas that is produced using renewable power. Plug can make the equipment that makes the hydrogen, distributes the hydrogen, and even uses the gas.
Hydrogen gas emits no carbon dioxide, the main gas blamed for climate change, when used. It is expected to be used more widely in the coming years, but there are still hurdles to widespread adoption. Hydrogen is more expensive than the fuels it would replace, such as diesel.
Managing cash flow until the hydrogen business achieves the scale needed to make money isn’t easy. Plug investors are finding that out.
Write to Al Root at [email protected]