Plug Power Inc (NASDAQ:PLUG) shares are getting the juice today. Shares of the alternative energy technology are up nearly 40% today following news that PLUG will develop hydrogen fuel cell range extenders for 20 FedEx Corporation (NYSE:FDX) electric delivery trucks.
The range extenders will nearly double the amount of territory the FDX vehicles can cover with one charge. As it stands now, the electric FedEx trucks are limited to traveling about 80 miles per charge. So, the new range will extend to nearly 160 miles, which covers nearly all of the FDX's delivery routes.
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While the initial focus of investors is on PLUG, let's take a look at what the benefit could be for FDX by moving to more electric routes. We'll have a follow up story on PLUG tomorrow.
The best we can tell, FedEx currently has somewhere close to 43 electric vehicles in its fleet, according to statisticbrain.com. In a 2011 opinion article in Fortune, FDX Chief Executive Frederick W. Smith says the company's couriers travel 2.5 million miles using 70,000 motorized vehicles worldwide -- nearly every single one of which is fueled by oil.
Considering modest improvements in the global economy, iStock would anticipate that the miles driven, and number of vehicles is up since the February 2011 piece, which called for an energy "solution that may become economically attractive sooner than most think: cars and trucks powered by electricity."
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It would be a mistake for investors to consider today's news as a one-off event given the CEO's green quest – connect the dots. If today's initial test proves successful, we'd expect the relationship to expand. Smith says, "Early results confirm that the costs of operating and maintaining electric vehicles are significantly less than those for traditional internal-combustion-engine vehicles. In some cases we've achieved savings of 70% to 80%."
FDX's most recent 10-Q showed fuel to be the third largest operating expense at 9.9% of sales in the last three months and 10% for the last six months. The delivery company spent $2.42 billion on fuel for the six months ended November 30, 2013. That's some serious cheese.
Now, some of the fuel costs are for Jet Fuel and don't apply to electric vehicles – not sure how safe an electric powered plane sounds. FDX's financial statements do not break our fuel costs by ground versus air, but we can make a calculated guess. If the FedEx Express segment's (which includes airplanes) fuel cost were divided 60% aircraft to 40% vehicles, then trucks and vans company-wide would account for $1.075 billion in costs for the first six months and closer to $2 billion per year.
Plug Power says its range extender solution could cut fuel expenses by approximately 35 to 40%. The difference between Smith's numbers and PLUG's is probably due to the cost of the batteries, which are most likely not included in Smith's calculations.
At the low end, 35% saved from $2 billion equals $750 million. That could mean an additional $2.40 per share a year in earnings for FDX using 312.23 million shares outstanding.
During the last five-years, FedEx's average price-to-earnings ratio was 29.44. An additional $2.40 per share in EPS would equal $70.66, which could add nearly 50% to the current stock price.
Overall: The Plug Power Inc (NASDAQ:PLUG) and FedEx Corporation (NYSE:FDX) could add up to some serious green for both companies if today's range extender news eventually extends to FedEx's full-fleet, which is something CEO Fred Smith seems to have on his wish-list.
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