Since its initial public offering on June 4, shares of Nikola (NASDAQ: NKLA) have surged over 130%. NKLA stock has cooled down since then and is now trading at just over a 60% premium from its IPO price of $34 per share.
Nikola isn’t alone. The entire electric vehicle (EV) market is on a tear. In addition to the surge in Nikola stock, Tesla (NASDAQ: TSLA) stock is up over 93%, and Nio (NYSE: NIO) stock has climbed nearly over 160% in the same time period. But while Tesla and Nio are actually producing cars, Nikola does not even have a plant built.
With all that said, the allure of Nikola is easy to see. The company plans to build a fleet of hydrogen fuel cell trucks powered by hydrogen fueling stations from sea to shining sea. At least that’s the plan. But that plan is years away. The company won’t even have a fuel cell truck available until 2023 at the earliest.
And while the United States has 39 hydrogen fueling stations, it’s an expensive, complicated venture. But that’s been the problem with hydrogen for nearly two decades. And that has some investors wondering what the company’s chief executive officer (CEO) Trevor Milton, is really selling.
Leaving aside whether Nikola is riding the coattails of Tesla, Nikola is beginning to create some significant coattails of its own. And there’s a reason for this. While Nikola is planning to compete with Tesla in the electric car arena, it’s also covering a specific niche with a semi-truck that will run on a hydrogen fuel cell.
Quick Links
- CNH Industrial
- FuelCell
- Bloom Energy
- Plug Power
- Ballard Power Systems
- Cummins
#1 - CNH Industrial (NYSE:CNHI)
Another partner that is enjoying a lift in its stock due to Nikola is CNH Industrial (NYSE: CNHI). The two companies are partnering to produce the Nikola TRE, its battery electric vehicle (BEV) heavy-duty truck. This will be the precursor to Nikola’s fuel cell electric (FCEV) model in 2023. The partnership will run through IVECO and FPT Industrial. These are the commercial vehicle and powertrain brands of CNH.
The exclusive partnership will include CNH taking a $250 million stake in Nikola. “Our European joint-venture with Nikola and today’s announcement is real proof that zero-emission long-haul transport is becoming a reality, resulting in tangible environmental benefits for Europe’s long-distance haulers and its citizens,” said Hubertus Muhlhauser, Chief Executive Officer, CNH Industrial.
Although CNHI is still down for the year, largely due to the fallout from the Covid-19 pandemic, the stock has been rallying. In June CNH received a revised price target of $8 (from $6.50) confirming the growing bullish sentiment for the stock. The stock has a consensus price target of $8.36 which would give the stock a boost of more than 18% from its current level.
About CNH Industrial
CNH Industrial N.V., an equipment and services company, engages in the design, production, marketing, sale, and financing of agricultural and construction equipment in North America, Europe, the Middle East, Africa, South America, and the Asia Pacific. The company operates through three segments: Agriculture, Construction, and Financial Services.
Read More - Current Price
- $0.00
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $14.74
#2 - FuelCell (NASDAQ:FCEL)
On June 12, FuelCell (NASDAQ: FCEL) posted revenue that was 21% higher than analysts’ expectations. But the company delivered earnings per share (EPS) that met expectations with a loss of 7 cents per share. As these things usually go, FCEL stock jumped over 20% on the report.
The stock has since come down a little bit. However, what must be encouraging to investors is that the stock has hit a higher low before starting to increase. It’s too early to say whether the stock is in an uptrend, but there may be a couple of catalysts. First, FuelCell may benefit from two new programs from the Department of Energy (DOE). The DOE is planning to invest $100 million over five years in the programs which “advance hydrogen and fuel cell technologies research and development (R&D).”
The DOE also announced it will begin accepting proposal requests regarding a separate, potentially $24 million project to support its “H2@Scale” initiative.
In its earnings report, FuelCell’s Advanced Technologies business continued to show strength, posting a profit of $200,000 in the quarter. This segment of the business is tied to the company’s partnership with ExxonMobil (NYSE:XOM).
About FuelCell Energy
FuelCell Energy, Inc, together with its subsidiaries, manufactures and sells stationary fuel cell and electrolysis platforms that decarbonize power and produce hydrogen. The company provides various configurations and applications of its platform, including on-site power, utility grid support, and microgrid, as well as distributed hydrogen; solid oxide-based electrolysis; solutions for long duration hydrogen-based energy storage and electrolysis technology; and carbon capture, separation, and utilization systems.
Read More - Current Price
- $8.26
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 3 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $19.17 (132.0% Upside)
#3 - Bloom Energy (NYSE:BE)
Bloom Energy (NYSE: BE) is another company that stands to benefit from the DOE programs announced in June. But that alone makes it hard to account for a stock that has gained nearly 40% in the last month. Bloom is not directly linked to Nikola like FuelCell would be. Bloom’s solid oxide fuel cells are used to generate power on site.
However, Bloom Energy does serve many of the key technology sectors that are growing in this environment including cloud services and data centers. That need is only going to increase. Like many companies in this space, Bloom is not yet profitable. Analysts are forecasting the company to post a loss of 33 cents per share when it reports earnings on July 28.
Nikola is drawing attention to the possibilities of hydrogen. Which means that it could be a tide that lifts many companies in this sector, including Bloom Energy. As part of a larger hydrogen infrastructure play, Bloom Energy merits consideration in this space.
About Bloom Energy
Bloom Energy Corporation designs, manufactures, sells, and installs solid-oxide fuel cell systems for on-site power generation in the United States and internationally. The company offers Bloom Energy Server, a solid oxide technology that converts fuel, such as natural gas, biogas, hydrogen, or a blend of these fuels into electricity through an electrochemical process without combustion.
Read More - Current Price
- $24.79
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $17.55 (29.2% Downside)
#4 - Plug Power (NASDAQ:PLUG)
Plug Power (NASDAQ: PLUG) has something many in this sector don’t. Actual revenue. Through contracts with Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT), Plug Power has companies that are using its fuel cell technology to power their forklifts. This is important because as the American economy comes out of this pandemic, oil will be at a discount.
That gives the company a compelling use case. However, Plug Power is still not profitable even after 23 years of being a publicly-traded company. This irritates investors who are seeing its revenue climb from $14 million to over $250 million in just one year. The company continues to burn through cash which reflects the problem with using hydrogen as a fuel source.
However, S&P Global Market Intelligence is projecting that Plug Power will be profitable in 2023. Plug Power has also received an encouraging outlook from Barclays Capital. The British firm initiated coverage on PLUG stock with a $7 price target.
About Plug Power
Plug Power Inc develops hydrogen and fuel cell product solutions in North America, Europe, Asia, and internationally. The company offers GenDrive, a hydrogen-fueled proton exchange membrane (PEM) fuel cell system that provides power to material handling electric vehicles; GenSure, a stationary fuel cell solution that offers modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors; ProGen, a fuel cell stack and engine technology used in mobility and stationary fuel cell systems, and as engines in electric delivery vans; GenFuel, a liquid hydrogen fueling delivery, generation, storage, and dispensing system; GenCare, an ongoing Internet of Things-based maintenance and on-site service program for GenDrive fuel cell systems, GenSure fuel cell systems, GenFuel hydrogen storage and dispensing products, and ProGen fuel cell engines; and GenKey, an integrated turn-key solution for transitioning to fuel cell power.
Read More - Current Price
- $1.92
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 11 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $4.52 (135.5% Upside)
#5 - Ballard Power Systems (NASDAQ:BLDP)
Ballard Power Systems (NASDAQ: BLDP) stock is up over 120% in 2020. Ballard could benefit from Nikola’s commitment to create a fleet of hydrogen-powered trucks. The company’s technology needs to be seeded into heavy transports like buses, trains, and trucks. Without that the company will continue to report the uneven results that have vexed investors.
For example, according to the company’s website, Ballard has “shipped over 670 MW of PEM fuel cell products.” But that hasn’t yet translated to the company’s bottom line. In its first-quarter earnings report, Ballard missed in terms of revenue and earnings. Revenue came in at $24 million, which despite missing expectations was over 40% better on a YoY basis. However, it still did not help earnings which dropped from a loss of three cents per share to a loss of six cents per share.
Other positive notes included a 22% gross margin and $181.6 million in cash reserves. The company is predicting that hydrogen refueling infrastructure may benefit from stimulus packages that are being initiated in Europe, China and the United States.
About Ballard Power Systems
Ballard Power Systems Inc engages in the design, development, manufacture, sale, and service of proton exchange membrane (PEM) fuel cell products. The company offers its products for power product comprising for bus, truck, rail, marine, stationary, and emerging market, such as material handling, off-road, and other applications.
Read More - Current Price
- $1.28
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 9 Hold Ratings, 5 Sell Ratings.
- Consensus Price Target
- $2.78 (117.5% Upside)
#6 - Cummins (NYSE:CMI)
The last company on our list is involved in hydrolysis. Cummins (NYSE: CMI) is one of just two companies that manufacture large-scale hydrolysis equipment. Hydrogen generation will not be commercially viable for quite some time. But that could be changing.
The DOE’s Fuel Cell Technology Office (FCTO) recently set aside $64 million for hydrogen research. The plan is to bring down the cost of hydrogen generation so that it can better compete with natural gas (the current source of hydrogen). The DOE press release says, "This investment will support transformational research and development (R&D), innovative hydrogen concepts that will encourage market expansion and increase the scale of hydrogen production, storage, transport, and use."
After dipping over 40% at the outset of the Covid-19 pandemic, shares of Cummins have rallied and are essentially flat for the year as of this writing. In June, Citigroup (NYSE: C) raised its price target on the stock to $192.
About Cummins
Cummins Inc designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems, and Accelera. The company offers diesel and natural gas-powered engines under the Cummins and other customer brands for the heavy and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense, and agricultural markets; and offers parts and services, as well as remanufactured parts and engines.
Read More - Current Price
- $360.95
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 6 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $337.67 (6.5% Downside)
I wouldn’t blame you if you were skeptical about Nikola. Nikola is not the first company to enter the alternative fuel auto market with more hype than hope.
The company has yet to produce a product of any sort, let alone something as ambitious as a hydrogen fuel cell truck. And developing the infrastructure to support the company’s ambitions will not be easy or cheap.
However, investing is about being in the right place at the right time. And Nikola may be ready to deliver on the promise of the hydrogen fuel cell market. One reason for that is because Nikola is focusing on trucks that run defined routes. This allows Nikola to plan their hydrogen fueling stations at optimal locations to ensure they will deliver the largest benefit.
Just as Nikola may be years away from delivering on its promise, these companies may not be a home run overnight. Nikola has given these companies valuable exposure now. It’s up to them to capitalize.
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