Electric vertical takeoff and landing (eVTOL) aircraft are a potential game-changer in urban mobility. These air taxis offer swifter, cleaner transportation in cities and significant growth potential for investors. Despite lingering challenges, the sector is projected to experience 50.5% growth by 2040. One company ready for takeoff and well-positioned to capitalize on this expanding market is Archer Aviation (ACHR), which aims to commercialize eVTOL in the U.S. by 2025.
Archer has tested its Midnight eVTOL vehicle and received FAA Part 135 certification, allowing the company to conduct limited scheduled operations. It has partnerships in the UAE, India, and Korea and is expanding geographically to foster further growth.
Most recently, Archer has announced plans to partner with Southwest Airlines to bring its air mobility network to Southern California. The move promises a sustainable solution to the city’s notorious traffic congestion, underscoring the practical application of this futuristic technology. The stock is down 42% year-to-date, but that decline has pushed it into value territory, creating a window of opportunity for forward-looking investors to gain exposure to this potentially game-changing technology at a reasonable discount.
Archer Hitting Take-off Speed
Archer Aviation specializes in the design, development, and operation of electric vertical takeoff and landing aircraft, and it has recently made significant advancements in its urban air mobility ventures. The company has recently reached a noteworthy agreement with Stellantis (STLA), who will provide up to $400M to ramp up Archer’s Midnight aircraft manufacturing, with the ambitious target of 650 aircraft annually. This collaboration will encompass manufacturing labor costs and certain capital expenditures until 2030 at Archer’s Georgia facility.
Apart from the Stellantis agreement, Archer has secured $230M in extra equity capital since Q2’s end, with strategic and institutional investors such as United. This new funding comes in addition to the recent unveiling of the company’s planned air taxi network in Los Angeles, which aims to provide urban air mobility for major global sporting events.
Additionally, Archer has delivered its first Midnight aircraft to the U.S. Air Force, part of a contract valued at up to $142M. The company also announced a significant deal with Future Flight Global to purchase up to 116 Archer Midnight aircraft worth $580M, bringing Archer’s indicative order book to approximately $6B. These developments and strategic partnerships with major suppliers and manufacturers like Honeywell (HON), Garmin (GRMN), and Safran (SAFRY) give Archer a competitive edge in the rapidly evolving urban air mobility sector.
Archer’s Recent Financial Results & Outlook
Archer recently released its Q2 financial results, reporting a net loss of $106.9 million, which was $77.2 million lower than Q2 2023 and can be attributed to a decrease in GAAP operating expenses and an increase in other income. The total operating expenses for this period were $121.2 million on a GAAP basis and $96.4M on a non-GAAP basis. Operating expenses were lower than the first quarter by $21.0 million, primarily due to decreased non-cash stock-based compensation and costs associated with technology and dispute resolution agreements.
At quarter-end, the company held $360.4 million of cash and cash equivalents and $6.7 million of restricted cash. Since the quarter’s end, the aviation company has raised an additional $230 million in equity financing.
Management projects total non-GAAP operating expenses of $90 million to $100 million for the third quarter of 2024.
What Is the Price Target for ACHR Stock?
The company has been in cash-burn mode as it pursues building a viable aircraft to bring to market. The ongoing costs have weighed on investors’ sentiment, resulting in a volatile downward trend for the share price, as it shed 64% over the past three years, and a significant percentage of shares held in short interest (16.97%). The negative price momentum has pushed the stock into value territory, with a P/B of 3.18x, comparing favorably to the Aerospace & Defense industry average of 4.5x.
However, despite the heavy costs, analysts following the company are bullish on the stock. For instance, J.P. Morgan analyst Bill Peterson recently raised the price target from $5 to $6 while maintaining an Overweight rating on the shares, noting investor sentiment could remain muted until concerns on company execution and balance sheet are finally resolved by aircraft commercially taking flight.
Archer Aviation is rated a Strong Buy overall, based on four analysts’ cumulative recommendations and price targets. The average price target for ACHR stock is $7.50, representing a potential 111.27% upside from current levels.
Final Analysis on Archer
Archer Aviation is pioneering a transformative era in urban mobility. Despite a challenging year marked by a 42% year-to-date decline in stock value, Archer holds promising potential driven by strategic alliances such as the company’s collaboration with Southwest Airlines and a recent manufacturing agreement with Stellantis.
Moreover, Archer’s impressive order book, worth approximately $6B, and relationships with major suppliers and manufacturers strengthen its foothold within the rapidly evolving urban air mobility market. Although the share price has experienced negative momentum, the upside potential from current levels makes this a compelling opportunity for investors interested in the sector.
