US Tax Incentives Will Unlock Green Hydrogen Potential

Key Takeaways

• Growing demand, favorable policies, and strong partnerships are expanding Nel's order backlog and supporting robust long-term revenue opportunities in the green hydrogen market.
  
• Ongoing technology improvements and cost-cutting measures are expected to boost profitability, improve margins, and strengthen Nel's competitive position.
  
• Delayed customer investments, industry overcapacity, unresolved regulatory frameworks, and slow commercialization of new products collectively threaten Nel's revenue stability, profitability, and competitive positioning.

Catalysts

A hydrogen company, provides solutions to produce, store, and distribute hydrogen from renewable energy in Norway and internationally.

• The recent extension and increased clarity around the U.S. 45V hydrogen production tax credit through 2027 is expected to stimulate project final investment decisions in North America, unlocking a substantial wave of new orders and future revenue as demand for green hydrogen accelerates due to favorable regulatory and financial incentives.
  
• Nel's ongoing R&D and introduction of next-generation electrolyser solutions-specifically its pressurized alkaline system and the new PEM stack-are set to significantly cut customer CapEx and OpEx, improving project economics and margins; these technology advancements should enhance Nel's competitiveness and pricing power, supporting margin expansion and top-line growth.
  
• Nel's leaner cost structure, with ongoing cost reduction initiatives, lower personnel expenses, and waning CapEx requirements following its production ramp-up, is likely to improve operating leverage and limit cash burn, creating a path towards improved net margins and earnings as revenues recover.
  
• Robust partnerships with major global EPC and energy players like Samsung E&A and Saipem, along with a focus on high-quality, bankable projects, are increasing the quality and visibility of Nel's order backlog, providing a stronger foundation for sustained revenue growth as hydrogen sector adoption broadens.
  
• Long-term secular momentum in industrial decarbonization and tightening emissions regulations across regions continues to drive a growing pipeline of large-scale hydrogen projects; as policy initiatives and carbon prices rise, adoption rates should climb-expanding Nel's addressable market and underpinning accelerated revenue and order intake over the next several years.

Nel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nel's revenue will grow by 14.2% annually over the next 3 years.
• Analysts are not forecasting that Nel will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Nel's profit margin will increase from -44.0% to the average GB Electrical industry of 5.2% in 3 years.
• If Nel's profit margin were to converge on the industry average, you could expect earnings to reach NOK 86.3 million (and earnings per share of NOK 0.04) by about August 2028, up from NOK -489.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 77.9x on those 2028 earnings, up from -9.1x today. This future PE is lower than the current PE for the GB Electrical industry at 390.1x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

Nel Future Earnings Per Share Growth

Risks

• The company experienced a sharp 48% year-over-year revenue decline in the latest quarter, largely attributed to lower project activity, contract cancellations, and delayed customer final investment decisions, suggesting continued long-term revenue growth may be at risk if hydrogen project momentum remains slower than anticipated.
  
• Nel is still operating at significant negative EBITDA, ongoing net losses, and cash burn-despite recent reductions-raising the risk of prolonged operational losses eroding shareholder value and potentially necessitating further equity issuance that could dilute earnings per share.
  
• Multiple competitors have exited or gone out of business in the electrolyzer segment, signaling possible industry overcapacity, persistent economic challenges, and slow green hydrogen adoption-which could threaten Nel's pricing power, overall order intake, and long-term margins.
  
• Customer delays in making final investment decisions (FIDs) and continued regulatory/regional uncertainties (e.g. US 45V tax credit details, insufficient EU hydrogen subsidies) may push out large orders, causing lumpy or unpredictable revenue streams and periods of capacity underutilization, impacting both top-line visibility and bottom-line stability.
  
• Despite technological advances, the company's next-generation products have yet to reach commercial scale, with commercialization and validation of key new systems scheduled for 2026-2027; technological or execution failures could hinder Nel's ability to compete, compressing future revenue growth and margins if adoption lags competitors or alternative energy solutions advance more quickly.

Valuation

• The analysts have a consensus price target of NOK2.375 for Nel based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK4.2, and the most bearish reporting a price target of just NOK1.2.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK1.7 billion, earnings will come to NOK86.3 million, and it would be trading on a PE ratio of 77.9x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of NOK2.42, the analyst price target of NOK2.38 is 1.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.