LLAP - Terran Orbital: 2024 Growth Prospects Waiting For Technical Confirmation

Summary

• Aerospace & defense equities performed well amid last year's volatility.
• One small growth stock has languished lately, but shares could be priced well ahead of 2024 earnings growth.
• The technicals on Terran look tentative for now, but it won't take much to break the downtrend.

Parts of the Industrials sector have lost some relative strength to the broad market, and the Aerospace & Defense niche is no exception. The group outperformed in 2022, but as the growth and long-duration themes have returned with animal spirits in 2023, defensive names have faltered a bit. Still the iShares U.S. Aerospace & Defense ETF (ITA) is near all-time highs on a total return basis.

One small firm, very speculative, features a big downtrend, though. But there’s a growth case to be made. Are shares of Terran Orbital (LLAP) going to spin up profits for the bulls? Let’s weigh the risks and potential.

Space Stocks Soaring, But Losing Some Relative Strength

According to Bank of America Global Research, Terran Orbital Corp is a vertically integrated provider of satellite solutions, including satellite design, production, launch planning, mission operations, and in-orbit support. The company is also building a constellation of 96 Earth Observation (EO) Satellites that will include satellites with both SAR (synthetic aperture radar) and electro-optical functionality.

The Florida-based $275 million market cap Aerospace & Defense industry company within the Industrials sector has negative trailing 12-month GAAP earnings and does not pay a dividend, according to The Wall Street Journal.

Terran appears positioned favorably for the emerging Earth imagery technological revolution and spending spree by the U.S. government. It’s a satellite play, and the firm’s valuable PredaSAR constellation technology, once built, will be able to gather images without interruption. What’s more, a 2022 partnership announced with Lockheed Martin should help support a longer-term growth narrative.

This is a flier play though, and key risks include changes to the SAR imagery industry and if the constellation is simply not built out. The LMT relationship is also critical to cultivate. Back in November, Terran reported a small earnings beat and a sizable top-line beat.

On valuation , analysts at BofA see earnings steeply in the red through this year, but then turning positive by 2024. The Bloomberg consensus forecast is about in line with what BofA projects, too. Don’t expect dividends to be paid out on this small-sized speculative growth stock, but both the firm's operating and GAAP P/E ratios are seen as turning attractive next year should per-share profits indeed turn into the black.

If we apply a 12x earnings multiple to next year's earnings outlook and, say, a 9x EV/EBTIDA ratio, then shares would be worth call it $5. Also, don't overlook massive free cash flow expected in 2024, too.

Terran Orbital: Earnings, Valuation, Free Cash Flow Outlook

Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q4 2022 earnings date of Tuesday, March 21 BMO with a conference call later that morning. You can listen live here . The management team is also expected to speak at the Sidoti & Company March Small Cap Conference 2023 from March 22 to 23. Wall Street Horizon notes that the earnings date was pushed back 12 days.

Corporate Event Risk Calendar

The Options Angle

Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show a consensus EPS forecast of -$0.23 which would be a slight sequential decline from -$0.22 of per-share losses reported in the November quarter.

With a limited reporting history, LLAP has issued mixed results versus expectations while shares have traded higher post-earnings in the previous two reports, but barely so. With a 16.1% stock price move priced in using the at-the-money straddle options expiring soonest after the upcoming earnings date, shares really have to move after earnings for it to pay off. That’s quite a gamble. Maybe stick with trading the low-priced shares.

LLAP: Short Earnings History, Big Move Expected Next Month

The Technical Take

With a positive growth outlook, albeit with significant risks and volatility ahead, how does the chart look? I see some potential here. Notice in the chart below that the stock is very close to rallying above a key downtrend resistance line, but it isn’t quite there yet.

Also, there should be support at the October low near $1.70 - that is where the falling 50-day moving average comes into play, too. I would like to see LLAP rally above $2.15 on volume to help confirm a break in the downtrend. Next resistance is seen near $3.50 to $4. Overall, the bulls have work to do to reverse a bearish trend.

LLAP: Eyeing A Downtrend Line For A Breakout. $3.5 to $4 Resistance.

The Bottom Line

I like the growth story with LLAP, but there are major risks on this speculative Industrials name. The chart has a similar summary – plenty of potential but more evidence is needed from the bulls. I am a hold for now but hope to revisit this one later this year to see how next year’s profit picture is shaping up.

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