Clean Energy Trends Will Expand Hydrogen Markets Despite Risks

Key Takeaways

• Rapid cost reductions and manufacturing scale improvements could drive profitability and margin expansion much sooner than market expectations.
  
• Expansion into new sectors and supportive global policies are set to diversify revenues and accelerate long-term market growth.
  
• Continued cost reductions, strong market leadership in fuel cell buses, and a robust balance sheet position Ballard for improved profitability and resilience amid industry uncertainties.

Catalysts

Engages in the design, development, manufacture, sale, and service of proton exchange membrane (PEM) fuel cell products.

• While analyst consensus expects Ballard's heavy exposure to bus markets to lead to lumpy project-driven revenues, the continued increase in repeat orders from transit operators and the positive field performance data for nearly 600 deployed buses suggest accelerating scale and order visibility, positioning normalized revenue growth well ahead of consensus expectations.
  
• Although analyst consensus anticipates that margin expansion will be challenged by persistent cost pressures and unprofitability, the rapid progress of Project Forge-expected to cut bipolar plate costs by 70% and scale manufacturing capacity tenfold by 2026-could drive a step-change in cost competitiveness and sustainable positive gross margins sooner than currently forecast, meaning net margins could inflect earlier than the market anticipates.
  
• Ballard's strong balance sheet, with nearly $577 million in cash and no debt, allows the company to invest in R&D, scale production, and weather industry downturns without immediate equity dilution, supporting robust earnings recovery and long-term market share gains as weaker competitors retrench.
  
• Ballard's focus on expanding beyond buses into rail, stationary, marine, and off-grid power solutions, where early customer demand is already visible, will diversify revenue streams and materially reduce customer concentration risk, supporting more stable and sustained top-line growth.
  
• Structural global policy tailwinds-ranging from clean energy mandates to accelerating capital flows into hydrogen infrastructure-are expected to move commercial demand for fuel cells in hard-to-abate sectors from early adoption to broad deployment over the next decade, enlarging Ballard's addressable markets and underpinning long-duration revenue and earnings growth.

Ballard Power Systems Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Ballard Power Systems compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Ballard Power Systems's revenue will grow by 44.7% annually over the next 3 years.
• Even the bullish analysts are not forecasting that Ballard Power Systems will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ballard Power Systems's profit margin will increase from -429.5% to the average US Electrical industry of 9.6% in 3 years.
• If Ballard Power Systems's profit margin were to converge on the industry average, you could expect earnings to reach $20.5 million (and earnings per share of $0.07) by about August 2028, up from $-303.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.9x on those 2028 earnings, up from -1.8x today. This future PE is greater than the current PE for the US Electrical industry at 12.9x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.7%, as per the Simply Wall St company report.

Ballard Power Systems Future Earnings Per Share Growth

Risks

• Ballard Power has demonstrated clear progress on cost reduction, with a 14-point improvement in gross margin and a 31% reduction in total operating expenses year-over-year, which could result in improved net margins and potentially stronger long-term earnings if efficiencies persist.
  
• The successful implementation of Project Forge, expected to reduce bipolar plate costs by 70% and increase production capacity tenfold, could materially lower production costs, increase profitability, and help Ballard overcome its historic negative gross margins.
  
• Ballard's balance sheet remains notably strong, with $576.7 million in cash, no debt, and no near
• or mid-term financing needs, providing stability and a competitive advantage that could support growth initiatives or weather industry downturns without significant equity dilution or solvency risk.
  
• Ballard leads the fuel cell bus segment in Europe and North America, with significant repeat business and a visible backlog, and ongoing adoption in transit buses could sustain revenue growth even as other market verticals remain volatile.
  
• Ongoing partnerships and collaborations with companies like Caterpillar and Microsoft, if converted from trials to larger commercial deployments, present potential future revenue opportunities that could help offset softness in other verticals or industry headwinds.

Valuation

• The assumed bullish price target for Ballard Power Systems is CA$2.02, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ballard Power Systems's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$2.02, and the most bearish reporting a price target of just CA$1.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $214.0 million, earnings will come to $20.5 million, and it would be trading on a PE ratio of 26.9x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of CA$2.5, the bullish analyst price target of CA$2.02 is 23.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.