Three Hydrogen Stocks Wall Street Analysts Are Keeping Within Arms Reach

Green energy generation is setting a new standard for the wider energy transition from fossil fuel towards cleaner, renewable sources. The energy transition has steadily been building up momentum in recent years, creating new opportunities for both companies and investors alike. 

Current estimates project that all hydrogen production coming online after 2025 will be clean hydrogen. More importantly, hydrogen demand could vary between 125 to 585 million tons per year depending on green energy developments that have largely been spearheaded by major energy contenders and backed by governments.

Demand for clean energy sources has seen noticeable traction across developed and developing regions, especially around the European Union, which up until a few years ago, heavily relied on Russian exported natural gas. 

Hydrogen companies are likely to benefit from the development of cost-effective structures and new hydrogen infrastructure supported by policies, and low-carbon initiatives implemented by governments. 

Wall Street continues to monitor these signposts, holding out for further developments in the hydrogen energy sector, and strategically placing themselves within arms reach of long-duration competitiveness of hydrogen-based technology. 

Three Hydrogen Stock Favorites 

Starry-eyed investors continue their bull run on technology and artificial intelligence (AI) stocks, with Wall Street sweethearts such as Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), Advanced Micro Devices (NASDAQ: AMD), and the remaining members of the Magnificent Seven having investors in a lasting chokehold following the breakout support these stocks have received since the beginning of the year. 

The undeniable support for technology and AI continues to bolster market sentiment, however alternative investment opportunities in clean energy could help provide investors with portfolio buoyancy in the long run, should government and private sector support affect the uptake of hydrogen companies. 

BP 

British Petroleum (NYSE: BP) has set out a target to become carbon neutral by 2050, or potentially sooner. Part of their plan is to boost the production of clean energy sources, including green hydrogen, increasing the availability of hydrogen fuel cells for a myriad of industries, including transportation, feedstock, industry, and residential power and heating. 

While a mammoth task, the company plans to accelerate the exploration of hydrogen energy across various pockets of the world, including their homeland, the United Kingdom, the U.S., Europe, and Australia. 

Most of their milestones remain on track, for now at least. In June 2022, the company released a statement, claiming that they will take on a 40.5% stake and operatorship of the Asian Renewable Energy Hub (AREH) project located in Pilbara, Western Australia, 

With the backing of BP and the Australian government, the project would further support the development of up to 26 Gigawatts (GW) of combined solar and wind power generating capacity. 

Hydrogen energy remains a key part of their bigger plan. The AREH project produces roughly 1.6 million tonnes of green hydrogen per year and is considered to be one of the largest hydrogen projects in the world. 

As of March 13, 2024, BP now holds a total stake of 63.57% in the AREH project following Australia’s Macquarie Group divesting its 15% share of the project. Following the offloading by Macquarie Group, BP is now the largest shareholder, with venture partners including Intercontinental Group and CWP Global owning 26.39% and 10.04%, respectively. 

Based on full-year financial reporting, the company managed to slightly increase its sustainability outlook, moving its output from 5.8 GW in 2022, to 6.2 GW by close of last year. 

In their Q4 2023 and full year 2023 reporting, the company reported raising dividends per ordinary share by 10% and successfully repurchased more than $7.9 billion in BP shares. The company has been focussing on reclaiming control over its balance sheet, reducing debt to $20.9 billion, the lowest in more than a decade according to the company. 

The majority of the company’s $208.35 billion revenue continues to be generated through the extraction, production, and distribution of crude oil and natural gas. However, BP has set out targets to increase its sustainable energy revenue margin drastically in the coming years, with target goals that are set to be incorporated between 2025 and 2030. 

While enduring a sticky year on the stock market due to the high volatility of oil prices, BP shares were zig-zagging across the board, sinking by just over 3% over the 12 months from March 2023 to March 2024. However, some losses have been regained, as year-to-date performance shows shares moving north, with a 5.13% improvement since the opening of the year. 

Air Products 

American multinational corporation Air Products and Chemicals (NYSE: APD) has started building momentum for their investment in major clean hydrogen production facilities in the U.S., Canada, and the Kingdom of Saudi Arabia, and operates more than 750 production facilities. 

For starters, the company is looking to become one of the largest producers of clean hydrogen energy in the coming years, with a total investment of more than $15 billion in various projects that will help advance clean and low-carbon hydrogen production. The investment would see Air Products becoming one of the largest, and most reliable suppliers of clean hydrogen energy in the European market. 

The company currently operates two clean energy complexes in both New York and Louisiana, with an additional one in Edmonton, Alberta, Canada. Elsewhere in southern California, Air Products operates one of the world's first commercial-scale sustainable aviation fuel production facilities. 

Perhaps the most noticeable of all these is the NEOM Green Hydrogen Complex, a green-hydrogen-based ammonia production facility in Saudi Arabia. The company claims that the NEOM facility would help meet increasing demand in the European market, following the European Union’s mandate for renewable fuels of non-biological origin by 2030. 

The facility could become one of the most valuable in all of Air Product’s current locations, despite having some delays and drawbacks over the last couple of years. Yet, the company remains optimistic that their $5 billion capital investment, following negotiations in July 2020, would pay off in the long term. 

The NEOM hydrogen complex is ambitious, to say the least. Air Products is positive that it would become one of the world’s largest green hydrogen facilities, with an estimated 600 tonnes of carbon-free hydrogen produced each day. Additionally, the complex is expected to deliver roughly 1.2 million tonnes of ammonia each year, far surpassing the delivery of existing facilities. 

Based on the most recent Q1 2024 earnings, the first quarter witnessed sales of $3 billion decline of 6% compared to the same period last year. The company explained that higher volumes, a one percent increase in pricing, and favorable currency trading led to an offset of 11% in lower energy costs being passed through. These factors led to an overall negative impact on sales, however, net income remained positive for much of the quarter. 

The company managed to increase its quarterly dividend to $1.77 per share in January, marking the 42nd consecutive year of dividend increases. Net income rose by 6.48% to $609.3 million, although free cash flow remains in the red following most recent earnings and the company holds that favorable pricing and currency conditions could help bolster performance for the year ahead. 

On the stock market, ADP shares remain relatively in line with the broader market performance, seeing a 9.97% decline on a YTD basis. Prices dipped more than 15% during the early trading days of February, although performance has steadily been improving, as demand for products continues to outpace Air Products' production output. 

In March, JPMorgan (NYSE: JPM) reaffirmed that they hold an overweight rating on Air Product and APD shares, emphasizing that the company’s strategic focus on green hydrogen energy production for the European market could put them in a long-term favorable position. 

Linde 

The German multinational company Linde (NASDAQ: LIN) is currently on an ambitious plan to become one of the largest suppliers of blue, gray, and green hydrogen fuel in the world, with an eye on the broader transportation industry. 

Though the company currently services an array of customers including those in healthcare, manufacturing, food and beverage, fiber-optics, and aerospace, among others, transportation is now becoming one of its key industries as demand for clean energy transportation is picking up across the world, 

Linde has been closely working alongside some of the biggest automotive manufacturers, including Daimler Truck AG, to develop liquid-to-liquid fueling technology which will be based on subcooled liquid hydrogen. These projects would enable the company to increase the range of vehicles operating on hydrogen fuel cells, improve refueling, and provide more efficient energy solutions.

In the last couple of years, the company has successfully built more than 15 hydrogen fueling stations for buses across the world. Other notable projects include the development of their IC 50-P Compressor, which would help reduce infrastructure costs to roughly €1 ($1.09) / kg of H2 dispensed. This is still below the current estimated cost of $1.5 and $2 / kg of H2 exports and production costs. 

While the European Union has introduced a flurry of clean energy mandates in recent years, Linde is putting their focus on the Asian market, and alternative networks in both South Korea and Japan. 

Mobility is a key selling point for the company, with cars and trucks only being the starting point. Other projects could include the production of hydrogen-fueled buses, trains, and in the near future, aviation and maritime. 

Linde makes a strong point of showcasing their support for the changing landscape in the U.S. where roughly 13 states currently mandate clean energy vehicles, and 48 hydrogen fuel buses currently in operation in California. 

Though the U.S. is steadily taking up a growing portion of the global hydrogen market share, regions such as Europe and Asia remain some of the company’s biggest supporters. 

Some highlights from their Q4 2023 financial earnings show that full-year sales of $32.9 billion declined by 2%, however, underlying sales were up by 5%. The company reported roughly $8.5 billion in project backlog for the fourth quarter, with earnings per share of $12/59 and adjusted EPS of $14.20, a strong increase of 16%. 

Another noticeable moment is operating profit, which moved slightly to $8 billion, and adjusted operating profit was up 15% to $9.1 billion, with an operating profit margin of 24.4% for the full year. 

Despite the slower-than-expected performance in the last quarter, LIN shares have been rumbling on the market, with a 16% YTD performance increase. Since February 5, LIN shares have climbed nearly 19% and managed to jump by 11.2% since their last earnings call, outperforming the S&P 500. 

For the upcoming earnings, ending March 2024, the company is expected to report an adjusted EPS between $3.58 and $3.68. Though Linde remains one of the biggest producers and distributors of natural gas, with $4.9 billion in the sale of gas backlog, according to fourth-quarter earnings, the company has both the resources and ability to rapidly tap into key hydrogen markets as demand continues to accelerate. 

Wall Street’s Bullish Take in Hydrogen 

Though it’s a tough call to make considering the growth of the hydrogen market in recent years, upside potential could come in the signpost mandates and policy support from governments in the United States and European Union. 

As countries look to move towards cleaner, greener, and more efficient mobility solutions, not only for the cars on their roads but for their public transportation networks and commercial aviation and maritime, hydrogen energy is an underdog that is flying under the radar. 

With Wall Street holding its finger on the pulse, hydrogen companies, or at least those making the switch from fossil fuels to hydrogen energy could help carry broader market sentiment in the coming years should ambitious green energy milestones set out by public and private sectors reach their maturity date.