New Plug Power Trade Idea Just Before Earnings

Plug Power (PLUG)  is expected to release the firm's fiscal third quarter financial results after the closing bell on Monday evening. 

The consensus view is for a GAAP EPS of -$0.13 on revenue of a little more than $176 million. That's down from where expectations had been ($185 million or so) roughly a month ago. Numbers like this would still compare well to the year-ago earnings print of -$0.24. A top-line result like that would amount to year-over-year growth of less than 6%.

It might come as a mild surprise that Wall Street's revenue expectations have come in a bit. Of the 19 sell-side analysts that I know of that cover PLUG, seven have revised their earnings estimates higher since the start of the quarter while only five have revised their numbers lower. Seven analysts have left their estimates completely unrevised.

Plug Power News

Shares of Plug Power popped early on Monday, not necessarily ahead of earnings and not necessarily due to the potential for a re-opening of the U.S. government. That pop, though, wore off shortly after the opening bell. The hydrogen-generated power company announced earlier that the firm expects to generate more than a $275 million improvement in its liquidity condition through a combination of asset monetization, a release of restricted cash and lower expenses related to maintenance.

As part of the announced initiative, Plug Power has signed a non-binding letter of intent to monetize the firm's electricity rights in New York and one other location with a U.S. data center developer. The developer is actively working to expand its data center platforms across the U.S. Plug Power will be working with them to explore providing auxiliary and back-up power utilizing the firm's advanced fuel cell technology.

The firm will also suspend activities related to the Department of Energy loan program and reallocate that capital toward projects with a potential for higher returns. The firm says that it will continue to evaluate strategic hydrogen production and power infrastructure projects that align with Plug Power's long-term cost roadmap and the expansion of mobility, industrial, and stationary power solutions for the firm's clientele.

The Chart​

​Readers will note that in mid-September, PLUG roared out of a double-bottom pattern of bullish reversal. The stock moved right into what I currently see as an incomplete head-and-shoulders pattern of bearish reversal with a $2.70 pivot. The stock had broken below that pivot and went into a three-day test of its 50-day SMA.

On Monday morning, the stock failed to take its 21-day EMA as swing traders likely took advantage of the sputtering rally. A fourth day of defense at the 40-day line is now underway. Should PLUG lose that line, it could lose the last institutional investors still involved with the name and it could lose the swing crowd as well that have been playing the two moving averages against each other.

Relative strength is now running below neutral and has been for two weeks, but is nowhere near being technically oversold. Below the chart, the daily MACD looks to be in a tough spot. 

The histogram of the nine-day EMA has been running below the zero-bound since mid-October. That's bearish. The 12-day EMA is now both below the zero-bound as well and running below the 26-day EMA. The 26-day line has just now sunk below zero. This is a bearish set-up. About the most positive thing I can say about the firm is that 28% of the entire float is currently held in short positions. On a better-than-expected earnings release, that could produce a "meme stock" style reaction to the upside.

I Would Rather...

Play volatility going into Monday evening. Getting long a $2.50 straddle expiring this Friday would currently cost the trader a net debit of about $0.39. The options market is pricing in a move of roughly $0.43 on this upcoming release, so nothing is really being mis-priced, but this may be a worthy proposition from a risk/reward proposition.

At the time of publication, Guilfoyle had no positions in any securities mentioned.