Ballard Power Systems Inc. (USA) (BLDP) Gets a Price Target Trim; Here’s Why

Ballard Power Systems Inc. (USA) (NASDAQ:BLDP) shares are down nearly 15% in the past two days on the back of  disappointing guidance. Specifically, that management said revenue would be “relatively flat in 2018,” or around the $121.3 million generated in 2017. That’s well below the Street’s $131.4 million forecast.

To the company’s credit – it delivered record 4Q17 and 2017 revenues, driven by an expanding opportunity set, with China the main driver. The company’s strategy is yielding record annual gross margin at 34% and adjusted EBITDA of $3.3M, highlighting profitability improvements.

In reaction, B.Riley FBR analyst Carter Driscoll reduced his price target for BLDP to $5.50 (from $6.00), while reiterating a Buy rating on the stock. The new price target represents a potential upside of 89% from where the stock is currently trading. (To watch Driscoll’s track record, click here)

Driscoll commented, “Ballard’s record year was partly driven by one-time technology transfer revenues to establish local module assembly and will not repeat in 2018, dampening near-term revenue growth. The local stack production established with JV partner Synergy complements the module assembly plant that supplies Broad Ocean and is required to qualify for China fuel cell subsidies. In 2018, we expect Ballard to transition from direct module sales to component/royalty sales, resulting in lower dollar content (but maintaining similar margins) and a focus on unit volumes supplied by the JV.

“We believe the ramp and demand pull through for components will take 2-3 quarters to overcome the one-time revenues earned in 2017 and masks the great progress Ballard has made in Europe/U.S. and in commercial trucks, trams and trains. So we see China, ~60% of 2017 revenues, should account for closer to 45% of revenues in 2018, while Europe and the U.S. make up for the changing revenue composition. Excluding these one-time revenue boosts of over $30M, we expect the core business to grow at 45-50%, supported by an order book of $91.2M,” the analyst continued.

Out of the 4 analysts polled by TipRanks (in the past 12 months), 2 rate Ballard Power stock a Buy, while 2 rate the stock a Hold. With a return potential of 58%, the stock’s consensus target price stands at $5.00

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