The energy sector has been witnessing a slow but steady transformation with climate change becoming a pressing concern across the globe. As an important move in meeting global goals on climate change, major countries are insisting their people shift toward clean energy.
Plug Power, Inc. (PLUG) and Cummins Inc. (CMI) are two of the world’s prominent players in the hydrogen-powered fuel cell technology space. With the world transitioning toward a sustainable energy-based future, the demand for hydrogen-powered cells is expected to rise significantly.
Both the stocks generated decent returns over the past three years. While PLUG returned 875% over this period, CMI gained 52.5%. In terms of year-to-date performance, PLUG is a clear winner with 674.4% returns versus CMI’s 32.4%. But which of these stocks is a better pick now? Let’s find out.
Business Structure and Latest Movements
PLUG is an alternative energy technology provider that engages in the design, development, manufacture, and commercialization of fuel cell systems for the industrial off-road markets worldwide. It provides hydrogen fuel cell turnkey solutions for the electric mobility and stationary power markets.
The company expanded its CE-certified GenDrive product line last month with the addition of three new fuel cell solutions designed for European industrial and material handling vehicles. PLUG also completed acquisitions of United Hydrogen and Giner Elx in the second quarter to accelerate its green hydrogen strategy. Moreover, the company is making big moves by signing new collaborations, including the MOU signed with Linde in September.
CMI is a global power leader that designs, manufactures, distributes, and services diesel and natural gas engines, and an engine-related portfolio of power solutions. The company primarily operates through four segments – Engine, Distribution, Components, and Power Generation.
CMI closed on the previously announced NPROXX joint venture with ETC for hydrogen storage tanks last month. This joint venture is expected to provide customers with hydrogen products for both on-highway and rail applications. Moreover, the company announced the opening of a new facility in Germany, which will initially focus on the assembly of fuel cell systems for global transportation leader Alstom’s hydrogen trains.
Recent Financial Results
PLUG generated net revenue of $107 million in the third quarter, increasing 18% year-over-year. The company deployed another record 4,100 fuel cell system and 13 hydrogen fueling stations in the quarter. This reflects a year-over-year growth of 130% for fuel cell units deployed. However, the company reported a loss of $0.11 per share compared to the year-ago value of $0.08 per share.
For the third quarter ended September 2020, CMI’s net sales declined 11% year-over-year to $5.1 billion. The company’s engine sales came in at $2.1 billion, primarily driven by an 8% increase in international markets, mainly in China. CMI reported EPS of $3.36 compared to the year-ago value of $3.97.
Here PLUG is in an advantageous position.
Past and Expected Financial Performance
PLUG’s revenue grew at a CAGR of 44.7% over the past 3 years. However, the company is still not profitable.
The market expects the company’s revenue to fall by 8.7% in the current quarter, but increase 35.9% next year. PLUG’s EPS is expected to grow 19.4% next year and at a rate of 25% per annum over the next five years.
On the other hand, CMI’s revenue and EPS grew at a CAGR of 0.2% and 2.5%, respectively, over the past 3 years.
The market expects CMI’s revenue to decline by 7.8% in the current quarter, but rise 11.2% next year. The company’s EPS is expected to grow 20% next year and at a rate of 2.1% per annum over the next five years.
CMI has an edge over PLUG here.
CMI’s trailing-12-month revenue is more than 63 times of what PLUG generates. Additionally, CMI is more profitable with a gross profit margin of 24.6% versus PLUG’s 5.3%.
Moreover, CMI’s ROE and ROA of 18.4% and 5.4%, respectively, compare favorably with PLUG’s negative values.
In terms of trailing-12-month P/S, PLUG is currently trading at 24.92x, 236% more expensive than CMI, which is currently trading at 1.76x. Moreover, CMI is less expensive in terms of trailing-12-month P/B (4.43x versus 15.46x).
PLUG looks much more expensive compared to CMI.
While PLUG is rated “Buy” in our proprietary POWR Ratings system, CMI is rated a “Strong Buy.” Here are how the four components of overall POWR Rating are graded for PLUG and CMI:
PLUG has an “A” for Trade Grade, a “B” for Buy & Hold Grade and Industry Rank, and a “C” for Peer Grade. In the 59-stock Industrial – Equipment industry, it is ranked #23.
CMI has an “A” for Trade Grade and Buy & Hold Grade, a “B” for Peer Grade, and a “C” for Industry Rank. It is ranked #1 in the 51-stock Auto Parts group.
While both PLUG and CMI are good long-term investments considering their rising global demand and continued expansion, CMI appears to be a better buy based on the factors discussed here.
The clean energy industry has been getting significant investor attention since Joe Biden’s win. It is expected that under the Biden administration, the United States will rejoin the Paris Accord United Nations climate change agreement to reduce greenhouse gas emissions. Moreover, the country is witnessing an increasing adoption of green energy by businesses and households, and supportive environmental steps under the recently announced Green New Deal.
PLUG has had an incredible run so far this year and the stock is being perceived as overvalued by traditional measures. Hence, CMI is a relatively cheaper option to bet on the immense growth potential of the green energy sector.
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PLUG shares were trading at $24.02 per share on Wednesday afternoon, down $0.45 (-1.84%). Year-to-date, PLUG has gained 660.13%, versus a 15.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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