Plug Power Inc. (NASDAQ:PLUG) is blowing up – in the good way. The green-tech company's shares were up 18.18% on Wednesday, building on Tuesday's 38.9% pop. Humpday's activity was 11 times the normal daily volume. That's going to work!
To rehash the reason for all the PLUG enthusiasm quickly, On Tuesday, PLUG announced they will develop hydrogen, fuel cell range extenders for 20 FedEx Corporation (NYSE:FDX) electric delivery trucks.
We wrote about the potential, ultimate benefit from FDX's side of the story, you can read about it here.
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Today, we take a shot at what it could mean if everything goes perfectly for Plug Power and they get all of FedEx delivery trucks and vans. As mentioned in yesterday's article, "FDX Chief Executive Frederick W. Smith says the company's couriers travel 2.5 million miles using 70,000 motorized vehicles worldwide." These extenders will increase the charge to close 160 miles, which covers almost all of FedEx's delivery routes.
The best we can tell, statisticbrain.com says FedEx has 43 electric vehicles in its fleet. You do the math, 70,000 motor vehicles with only 43 the electric variety, and a CEO who has publicly called for an energy "solution that may become economically attractive sooner than most think: cars and trucks powered by electricity."
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The dots were connected with yesterday's news; hence: PLUG's multi-day pop. Let's do some dot connecting of our own. Based on the number of fuel cells Plug Power sold in the last nine months, PLUG generated more than $20,000 in revenue per battery sold in the nine months ended September 30. However, that includes service fees and for fork-lifts, which require less energy than vans and trucks.
For now, at least, the focus of the extended range fuel cell will be for FedEx vans. Unfortunately, the kind folks at FedEx would not share with us the number of vans or the replacement rate; so, we will have to make a guess on both parts.
Based on what we see on the road, perhaps your experience is the same; this author sees more delivery trucks than 18-wheelers. Conservatively, we estimate half the fleet is the local delivery type.
That puts us at 35,000 potential fuel cell needing electric possibilities. We'll put the average life of a delivery van at five years since that is allowable depreciation recovery periods trucks. That is 7,000 replacement vans a year.
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After some digging on the internet and PLUG's website, iStock guestimates that the top end 10-kilowatt Plug Power hydrogen GenDrive Series 1000 product costs around $9,000 per battery. The US department of Energy says the factory cost per kilowatt is roughly $650 to produce a fuel cell. The difference is the mark-up and part educated guess.
Doubling the range will probably increase the cost. For the sake of argument, we'll put it at 50% more and a per battery price of $13,500.
If all goes well with the current test of 20 extended range batteries i.e. it's cost effective and reliable, then it's not s stretch to expect the relationship between PLUG and FDX expand to cover additional vans. In all likelihood, each van will require more than one battery for backup and to account for more than one delivery route per day.
We'll put the number at 1.5. Let it be known that most of PLUG's current customers purchase multiple fuel cells per fork-lift. So, 1.5 is probably on the low end.
Using the best case scenario of 100% of FDX replacement vehicles switching from gas to fuel cells, then 7,000 vans a year equals 10,500 batteries (1.5 per van) purchased. At $13,500 per, we arrive at $141.75 million per year, which does not include service revenue or current business.
Let's add in what is on the books now, some service revenue for out hypothetical FDX deal, and put the annual revenue figure close at $200 million. That's a massive increase from last year's $24.49 million; however, the company's market-cap stands at 466.84 million, already. That's richly priced at 16 times sales.
We think Wall Street would be comfortable paying five times sales (probably a lot more) for that sort of growth rate and high visibility for ongoing business. Based on the current shares outstanding, and the FDX relationship maxing out, we think a fair price for Plug Power Inc. (NASDAQ:PLUG) would be $9.75.
That being said; if the test with FedEx doesn't pan out, then the stock could be looking up at a buck.
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