DJ The Bulls May Still Be Driving, but The Bears Are Waking -- Barron's
By Al Root
There is a future in flying cars -- of a sort. Wall Street is bullish on the new disruptive technology call eVTOL, which stand for electric vertical takeoff and landing aircraft. Aggressive growth investors can follow new Street recommendations, but they shouldn't jump all in just yet.
The new vehicles are a cross between flying cars and helicopters that many new startups what to used in ride-hailing applications. It's a little like an Uber ride in the sky. Despite the Jetson's feel to the segment, which might generate some skepticism, Wall Street is uniformly recommending eVTOL stocks.
Thursday is the latest example. Morgan Stanley analyst Kristine Liwag launched coverage of eVTOL maker Joby Aviation (ticker: JOBY) with a Buy rating. The "sky's the limit," wrote Liwag. She sees upside as high as $60 a share -- which would value Joby at almost $40 billion. That's in the range of private jet maker and defense giant General Dynamics (GD), which has a market capitalization of about $55 billion.
But there are risks to any new disruptive technology, so on balance, she takes a more conservative approach. Her official target price is $16 a share.
Joby stock rose 9.3% Thursday, closing at $10.57 a share. The S&P 500 and Dow Jones Industrial Average gained 1.2% and 1.5%, respectively.
It's Joby's first rating, according to Bloomberg. That's one reason for the big stock reaction. It's the first, and only, call on the stock. And it's bullish. Joby just completed its merger with a SPAC, making it a publicly traded company in August. It typically takes Wall Street a few weeks to ramp up coverage.
A stock the size of Joby -- its market cap is currently about $7 billion, based on its fully diluted share count -- will typically have eight to 10 analysts covering it.
A lack of coverage, plus a disruptive technology, usually means stock market volatility. Joby stock was about $10 before the SPAC merger closed. It shot up to about $13 right after that, then slid all the way back to less than $10 before the new rating.
eVTOL -- as an industry or an investment -- is a little like commercial space flight. Helicopters have been around forever, like rockets. But falling costs are enabling new applications. (Reusable rockets have led to SpaceX being valued at $74 billion in private markets.)
Liwag sees sales growing from zero today to about $390 million in 2026 and $3.4 billion by 2030. Between now and 2026, Joby has to receive FAA approvals for its new aircraft. That should come around 2022. By 2026, the company expects to operate its planes 12 hours a day, seven hours of which will generate sales, with the average length of a flight at 24 miles.
The average flight should cost people about $50 and cost Joby about $20 per ticket to operate. All of those assumptions are just best guesses at this point. The eVTOL is new.
Joby isn't the only player, though. Blade Air Mobility (BLDE), Archer Aviation (ACHR), and Lilium (LILM) are three other stocks in the eVTOL business. Blade stock rose 3.2% in Thursday trading. Lilium stock fell 1.4%. Archer shares added about 6%.
Blade has four analysts covering its stock, according to the company. All four rate the shares a Buy. Archer has one analyst covering its stock, according to Bloomberg. Benchmark analyst Josh Sullivan rates shares Buy and has a $15 price target. Lilium has one analyst covering its stock, per Bloomberg. Piper Sandler analyst Alex Potter rates shares Buy. His price target is $17.
The industry is seven for seven with analyst Buy ratings. The Street sees gains ahead for eVTOL stocks, which all trade for between $9 and $12 a share. Right now the sector is valued at about $15 billon, or as much as aerospace and industrial conglomerate Textron (TXT).
The cheapest stock is Blade, with less than a $1 billion market cap based on roughly 83 million fully diluted shares outstanding. It wants to operate the network, not build the aircraft. Investors might want to remember that Uber Technologies (UBER) is worth more than General Motors (GM). Investors like asset light network business models.
Who will win the eVTOL wars, however, is anyone's guess.
Write to Al Root at allen.root@dowjones.com
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(END) Dow Jones Newswires
September 24, 2021 21:30 ET (01:30 GMT)
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