Shift Into Hydrogen Could Lift These 3 Stocks Higher
In a report on the alternative fuel market, analyst Rupert Merer, of National Bank of Canada, looks at the possibilities and potentialities of the hydrogen as both an energy resource and a commodity. At the heart of the matter, he writes, “Stakeholders across energy markets have reached the consensus that climate change is a problem and decarbonization of our energy supply mix will require a multifaceted approach which includes H2. It is estimated that H2 could supply 15% to 25% of global energy needs…”
Merer adds, of hydrogen’s potential benefits, “H2 has the ability to reduce emissions in sectors where decarbonization is otherwise challenging, such as freight logistics, collective transport and industrial heating.”
So what is hydrogen, and why is it important? Hydrogen is the most plentiful element in the observable universe, and is a common building block in complex organic molecules. It’s found in both wood and petroleum derivatives – there is a reason those are commonly called hydrocarbons – and along with oxygen, it is part of the ordinary water molecule. Without hydrogen, life as we know it would not be possible.
With this in mind, using TipRanks database, we locked in on three stocks that some of Wall Street’s top analysts have tapped for gains in the growing hydrogen environment.
Ballard Power Systems (BLDP)
The first stock on the list is Ballard Power Systems, a hydrogen fuel cell manufacturer based in British Columbia, Canada. The company focuses on proton exchange membrane technology, one of several competing technologies in the hydrogen fuel cell market. Ballard’s PEM fuel cells are distributed worldwide, and to date, the company has produced and shipped over 400MW worth of fuel cell products. Ballard’s fuel cells are used in transportation technology, to enable fully electric busses, commercial trucks, trains, and forklift vehicles.
Like many manufacturers dependent on the transportation sector, this has been a hard year for Ballard. The disruptions caused by the coronavirus have hit the company form two directions: first, the usual foul-ups in the supply and distribution chains – but also, Ballard markets its products to commercial users, who have themselves been locked down due to corona. In short, Ballard saw revenues fall in the first part of 2020, and they have yet to recover. Q3 revenues came in at $25.6 million, in line with the first and second quarters of the year.
Ballard’s share price, however, has been going up and up and up all year, despite some short-term periods of volatility. Overall, the shares have grown 170% year-to-date. The gains show the cachet of hydrogen in a market that is actively seeking renewable, less polluting, and non-emission energy sources. Hydrogen checks all three boxes.
Covering Ballard for Roth Capital, 5-star analyst Craig Irwin sees the company in a sound position for rapid future growth.
“BLDP exited 3Q20 with $361m in cash and no debt, and with only $100m-$120m in capital needed to generate positive earnings. Mgmt was clear that it intends to more actively evaluate M&A targets across the entire H2 and FC value chains [...] We remain optimistic on the LT uplift to revenue supported by the new China FC subsidy program, and would be buyers on any weakness," Irwin opined.
To this end, Irwin rates BLDP a Buy, and his $25 price target implies room for 29% growth in 2021. (To watch Irwin’s track record, click here)
Wall Street is broadly in agreement with this analysis. Over the last couple of months, BLDP has received 3 Buy ratings and 1 Hold from Street analysts. With an average price target of $24 per share, the potential upside stands at ~24%. (See BLDP stock analysis on TipRanks)
Air Products and Chemicals (APD)
Air Products and Chemicals is primarily known as a provider of industrial gasses – which makes it a natural for the hydrogen industry. In its pure form, hydrogen is gaseous at ‘normal’ conditions. APD earlier this year capitalized on that natural fit, and contracted to acquire 5 hydrogen production plants in an agreement worth $530 million. Along with the new plants, APD also sealed its position as a major hydrogen supplier for PBF Energy.
APD's acquisitions show it is serious about becoming a long-term provider to the hydrogen industry. APD is already an important supplier to hydrogen refiners, providing a pure gas that is usable as in transportation fuel technology.
In the recently fiscal 4Q20, APD missed earnings targets but beat the forecasts on revenues. The FQ4 top line hit $2.32 billion, up 2% year-over-year and also 2% over the estimates.
Argus analyst Bill Selesky likes APD’s overall position in the market, noting: “Despite weak results in fiscal 4Q20 due to the pandemic, we believe that performance will begin to improve. We also believe that APD is extremely well positioned to manage through this period due to its stable cash flows, lower-than-average debt, and investment-grade credit rating.”
Selesky gives APD shares a $360 price target, suggesting 33% growth ahead, and maintains a Buy rating on the stock. (To watch Selesky’s track record, click here)
Air Products has 11 recent reviews, breaking down 10 to 1 in Buys and Holds, and giving the stock a Strong Buy analyst consensus rating. The average price target is $311.10, indicating a potential 15% upside from current levels. (See APD stock analysis on TipRanks)
BP PLC (BP)
Last but not least is BP, the petroleum giant. This company has a reputation within the industry as a leader in moving toward non-petroleum, renewable energy sources, and has in the past conducted initiatives in wind, solar, and hydrogen energy. Last year, the company joined the Global Hydrogen Council. As a major player in the natural gas market, BP is well-positioned to also become a provider of ‘blue’ hydrogen, or H2 derived from natural gas sources.
BP is also conducting a project at its Lingen refinery in northwestern Germany, converting the facility to produce hydrogen from water. The project is in collaboration with Orsted, and when it comes fully online in 2024 will be able to produce up to one metric ton of clean hydrogen per hour.
Taking a lead in the renewable energy market is one way that BP is moving to shore up its future position. The hydrocarbon industry won’t last forever, and 2020 has been a particularly difficult year. Shares are down 36% year-to-date, and quarterly revenue has fallen from $74 billion in Q1 to $44 billion in Q3. Q3 did, however, see the company post a $100 million net profit, after heavy losses in Q2.
Sam Margolin, 5-star analyst with Wolfe Research, wrote of BP after the quarterly report, “Our instinct is that the underlying O&G story is more influential to near term stock performance, although the Lingen announcement is positive for BP as it reflects the company’s ability to partner with industry leaders to advance its net-zero plan.”
Margolin is bullish on BP, and his stance comes with an Outperform (i.e. Buy) rating. His price target, of $31, implies an upside of 41% in the year ahead. (To watch Margolin’s track record, click here)
All in all, BP has a Moderate Buy rating from the analyst consensus, based on 6 reviews that include 4 Buys and 2 Holds. The shares are selling for $21.94 and the average price target of $29.80 suggests room for 36% upside potential in the next 12 months. (See BP stock analysis on TipRanks)
To find good ideas for hydrogen stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.