“Hydrogen is increasingly being recognized as a critical component of global de-carbonization strategies. We believe a multi-decade hydrogen transition is possible with significant investment and government support,” RBC’s Joseph Spak wrote in a note.
According to the Hydrogen Council, a CEO-led initiative of roughly 100 companies around the world, the hydrogen economy could generate more than $2.5 trillion in revenue per year by 2050.
RBC assigned Plug Power an outperform rating and set a target price of $42, implying a 23 percent increase from the stock’s Tuesday closing price of $34.08.
According to RBC, Plug Power leads the hydrogen fuel cell space with a nearly 95 percent market share in fuel cell forklifts. The company highlighted Plug Power’s “pedestal” customers, which include household names such as Amazon, Walmart, Home Depot, and General Motors.
“Fuel cell penetration within this market is still in its infancy, but it has the potential to grow as fuel cell forklifts become competitive with traditional offerings and customers seek decarbonization efforts,” said Spak.
Beyond fuel cells, RBC envisions Plug Power becoming a “one-stop hydrogen shop” as it seeks to vertically expand into a producer and distributor of hydrogen.
Plug Power shares are nearly flat in 2021, but have risen more than 300 percent in the previous year.
Expecting a market correction
Despite equities trading higher under the positive background, it is possible that the market has set itself up for a correction.
“History suggests, but does not guarantee, that even though CFRA expects the S&P500 to rise to 4,444 by year’s end, the S&P500 is overdue for a drop of more than 5%,” CFRA chief investment strategist Sam Stovall said.
The S&P500 had gone 275 calendar days since its last decline of 5% or more as of June 25. That drop occurred in September, when the 500-stock index fell nearly 10%.
Since 1945, there have been 60 pullbacks (declines of 5% to 9.9%), 23 corrections (declines of 10% to 19.9%), and 13 bear markets (declines of 20% or more). The average time between these drops is 178 calendar days, making the current period the 19th longest since WWII.
Homebuilder stocks is another industry to look at
According to Goldman, homebuilder stocks covered by the firm are down 15% from their May highs, while the S&P500 is up 2%.
“While demand remains well ahead of supply, leaving us optimistic about the long-term fundamentals,” Goldman Sachs’ Susan Maklari wrote in a note released Wednesday.
When it comes to homebuilders, Maklari believes the second quarter is all about margins. According to Goldman, with companies working through existing backlogs and orders slowing, earnings performance will be primarily determined by builders’ pricing power.
Goldman downgraded Pulte shares to neutral from buy, claiming that much of the homebuilder’s strengths have already been priced into the stock’s valuation. The company also reduced its price target from $69.00 to $62.00. The new price target represents an 11.6 percent increase over the stock’s Tuesday closing price of $55.54.
“While we expect Pulte to maintain its peer-leading profitability with our coverage universe, upside to its [return on equity], a key driver of valuation, will be limited in the coming quarters, leaving the stock range-bound,” Maklari said.
Meanwhile, D. R. Horton was named the investment bank’s top homebuilder stock pick, citing the company’s “operating acumen.” Goldman maintained its buy rating on the stock and set a price target of $112, representing a 23.74 percent increase over the stock’s Tuesday closing price of $90.51.
The firm also reiterated its buy rating on KB Home and neutral rating on Lennar, while maintaining the same price targets.
KB Home — target price of $62 (52.11 percent upside to Tuesday closing price)
Price target for Lennar is $105 million (5.8 percent upside to Tuesday closing price)
Goldman lowered its price targets for Meritage Homes, which is rated neutral, and Toll Brothers, which is rated sell.
Meritage Homes — target price of $110 (16.3 percent upside to Tuesday closing price)
Toll Brothers — target price of $55 (5.5 percent downside to Tuesday closing price)
Maklari noted that comparing orders in the second half of 2021 will be difficult, as Covid drove a surge in “consumers’ desire for more space and suburban lifestyle” the previous year.
The S&P Homebuilders Select Industry Index has fallen 2.35 percent in the last month, but is expected to rise 29 percent in 2021.