By Anna Prior
Fuel-cell manufacturer stocks took a sharp turn lower Tuesday
after a noted short seller likened one company's meteoric rise to
gambling, denting some of the recent excitement about the
technology's move into more commercial uses.
The companies in the sector make technologies focused on fuel
cells, which through a chemical reaction convert hydrogen or gas to
produce electricity to power forklifts, generators and vehicles,
among other things. The sector also has a long history of
unprofitability and is known for its volatile share moves and heavy
short-interest positions.
Citron Research called out Plug Power Inc. on Tuesday,
describing the company, which makes fuel cells for forklifts and
pallet trucks, as a "casino stock," with investors gambling that
they can find a buyer at a higher price. The firm warned the stock
is headed to 50 cents a share based on its history of missing
financial targets and its lack of unique technology.
A representative from Plug Power wasn't immediately available to
comment on the Citron report.
Plug Power had a wild day in the market Tuesday, trading between
$5.95 and $11.72, propelled in early trading by peer FuelCell
Energy Inc.'s slightly better-than-expected revenue in its latest
quarterly report.
Though that report was by no means stellar, shares of FuelCell,
along with Plug Power and peer Ballard Power Systems Inc., posted
double-digit gains as investors appeared to latch on to any sign of
optimism to continue driving the valuations higher. All three
stocks later reversed course to post equally steep declines after
the Citron report was posted midday.
For its part, Plug Power has benefited from a boost in
visibility after expanding an agreement with Wal-Mart Stores Inc.
late last month to install more than 1,700 of the its hydrogen
fuel-cell systems to power electric forklifts at six of the
retailer's North American distribution centers.
Wal-Mart hopes that technology will improve its productivity and
ease environmental concerns as workers should spend less time
fueling a forklift truck than changing a lead-acid battery. The
fuel cells also have no exhaust emissions.
Plus, if the rollout is successful, analysts have said this
could open up a much wider market for Plug Power, as well as
Ballard Power, which supplies the fuel-cell stacks used in Plug
Power's systems.
"Wal-Mart suppliers have become more interested in our product
since the announcement" and the news has also excited Plug Power's
current customers as well, Plug Power Chief Executive Andrew Marsh
said at a conference on Tuesday. He added he believes the company
can continue to expand the market for its forklift systems for the
foreseeable future.
Mr. Marsh also has suggested that the company expects to make
money, or at least break even, this year, after a string of losses
going back to at least 1997, further boosting enthusiasm for the
stock.
Citron, however, expressed its doubts. The firm said Plug Power
has made similar profit projections, only to be proved wrong. Also,
Citron noted that the company has had a pact with Wal-Mart for four
years.
Plug Power is expected to update its outlook when the company
reports its fourth-quarter results Thursday.
Meanwhile, several auto makers are preparing to roll out
emissions-free cars powered by hydrogen fuel cells instead of
gasoline engines, opening up further growth opportunities. Three
car makers have disclosed plans to lease a small number of new
vehicles in California and in a few countries in Europe by the end
of next year.
Shares of Plug Power, FuelCell and Ballard Power have all more
than doubled this year, despite Tuesday's losses. All three
companies have a heavy short-interest position, led by Plug Power
at 16%.
"These stocks are trading on froth at these levels," said Byron
Capital Markets analyst Dev Bhangui. "It's a pendulum swing--it
took so long for investors to get behind them, and now they can't
get enough."
Representatives from FuelCell and Ballard Power weren't
immediately available for comment.
Contributing to some of Tuesday's pessimism, Lake Street Capital
Markets analyst Robert Brown lowered his rating on Ballard Power to
hold from buy, saying the shares "fully reflect the significant
improvement in business fundamentals and the growth potential from
the core forklift and back-up power markets."
While Mr. Brown said he likes Ballard's core business trends, he
warned it might be a risky investment if new programs don't develop
as expected.
Write to Anna Prior at anna.prior@wsj.com
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