ACHR - Archer Aviation: Promising Developments

Summary

• Archer Aviation Inc. jumped to $3 on the excitement of small insider purchases.
• The eVTOL manufacturer recently announced several major developments towards FAA certification and production of the Midnight aircraft.
• Archer Aviation stock is interesting, with a $700 million market cap and with initial revenue targets in the $1+ billion range.

As with most SPACs, the stock market lost interest in the money-losing stocks that came public over the last couple of years. Archer Aviation Inc. ( ACHR ) is a prime example, with mounting losses and the company still being years away from the launch of their prime eVTOL aircraft. My investment thesis is more Bullish on the future flying taxi firm, especially with some insider purchases signaling the bottom in the $2s.

Small Insider Purchases

Since going public via the Atlas Crest Investment SPAC in 2021, Archer Aviation slumped all the way to $1.62. All of the sector stocks have struggled, with Eve Holding, Inc. ( EVEX ) being the only one to not currently trade below $5 due to sizable orders.

If management thought the stocks came public via the SPACs at a solid valuation of $10, a stock like Archer Aviation trading in the $2s should be a huge buy. Several insiders at the eVTOL manufacturer finally agreed on January 13 with the news coming out on January 17.

In total, 4 different insiders purchased ~100,000 shares at a total cost of only $250K. The stock soared over 20% at one point in the day, but the insider purchases weren't huge amounts for a stock valued above $700 million now.

One interesting aspect of the insider purchases is that 10% owner Brett Adcock actually sold 200,000 shares at the same time. This insider spent the last few months dumping blocks of 100,000 shares on a regular basis. The Archer Aviation co-founder appears to still own 24 million class B shares.

The executives buying a few shares is a definite positive, but the net effect isn't very positive. That is likely the reason Archer only rallied 13% on the day after being beaten down very hard.

The prime person to get behind the executive purchases is all the positive developments in the last few months. Archer Aviation not only found a manufacturing site in Georgia, but the company also agreed to a deal with Stellantis N.V. ( STLA ) to become the contract manufacturer for Archer.

The Stellantis deal includes a potential $150 million equity investment after achieving certain milestones in 2023 and 2024. In addition, the large auto manufacturer plans to purchase Archer Aviation shares in the public market to expand an existing investment ahead of the manufacturer's launch of a facility capable of building 650 aircraft annually.

The company also continues to expand the relationship with United Airlines Holdings, Inc. ( UAL ) recently announcing the initial route of the UAM network. Archer Aviation will fly a route between United's hub at Newark Liberty International Airport (EWR) and the Downtown Manhattan Heliport, located just above Battery Park on Pier 6.

All About FAA Approval

On November 17, Archer unveiled the production Midnight aircraft. On November 29, the Maker aircraft completed its first transition to full wing-borne flight as the company continues to check off milestones towards FAA approval in late 2024, with the ultimate use in the UAM network in 2025.

The company has completed the primary goals for 2022 and the market should have vastly more confidence in Archer Aviation hitting key milestones listed above. The primary milestones for 2023 are the full power train system validation, completing the construction of the manufacturing facility, and launching the mobile booking application, leading to a 2024 focused on FAA certification.

Archer Aviation has $600 million in cash and spent $61 million in Q3 2022 on operating expenses, up $11 million sequentially. The company had an adjusted EBITDA loss of $61 million in the quarter.

The future flying tax firm has several opportunities to fund growth, including the new $150 equity capital plan with Stellantis. In addition, the company expects to receive more pre-delivery payments similar to the $10 million from United Airlines to secure 100 production aircraft.

The original financial model has Archer Aviation producing $1 billion in 2025 revenue from 250 production aircraft. Revenues were forecast to grow at a path of $1+ billion per year, with aircraft production growing each year.

The stock is vastly more interesting here at a $700 million valuation, with insiders making some small purchases. In addition, the company has made vastly more progress towards FAA certification and production, with the calendar turning into 2023 and major target dates only 1 year away.

Naturally, Archer Aviation's stock faces massive risks. Any significant delay in certification could seriously hit liquidity, with high levels of ongoing cash burn. Not to mention, several competitors could beat Archer Aviation to market, or ultimately build a more compelling aircraft for purchase or to operate in UAM networks.

Takeaway

The key investor takeaway is that Archer Aviation Inc. is far more appealing as the FAA certification and production dates approach compared to when the SPAC went public back in 2021. Archer Aviation's stock is clearly high risk, but investors should look towards starting to build a position as the excitement over eVTOLs could start to build.

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