Summary
- Luminar Tech. continues to expand the order book to limited excitement from the stock market.
- The Lidar sensor company likely now has an order book of $5-6 billion over the next 5 years.
- LAZR stock isn't priced for this order book size or the potential for annual revenues to top $1 billion by 2026.
The Autotech space continues to fail to garner any respect from the stock market. Luminar Technologies ( LAZR ) announced a multi-billion dollar deal expansion and the stock valuation is possibly still below the value of this one deal alone. My investment thesis is ultra Bullish on the Lidar company shifting towards ADAS and away from a requirement for fully autonomous driving in order to reach large production deals.
Expanded Deals
On February 22, Luminar announced the expansion of a partnership with Mercedes-Benz to enable enhanced automated driving capabilities. The company had already entered a series production deal for the Iris Lidar sensor in October 2022 with SAIC in China and had successfully completed the initial phase with Mercedes-Benz originally announced back in early 2022.
The agreement is apparently a multi-billion dollar deal for a broad range of next-generation production vehicles by mid-decade. The companies will implement a Level 3 system focused on operating at a higher speed for freeways, as well as for enhanced driver assistance systems for urban environments.
Luminar ended 2022 confirming the forward-looking order book increased by over 60% from the $2.1 billion level at the end of 2021. The calculation works out to an order book of $3.4+ billion through 2026.
The important note here is that management made the wild claim on the Q3'22 earnings call that the order book would be $15-20 billion based on the standards used by peers in the Lidar sensor space. The Luminar stock isn't accurately valued for such a massive order book.
The Mercedes-Benz deal announcement is exciting and problematic at the same time. The company already has a deal with Mercedes-Benz and the announcement is very vague on the details of the "multi-billion dollar" order.
The big question is whether any of this deal was included in the 2022 order book growth of $1.3 billion and whether the multi-billion dollar agreement is $2 billion or $3 billion or $4 billion. Innoviz Technologies ( INVZ ) announced a deal with Volkswagen AG ( VWAGY ) for $4 billion in a sign of the deal size potential with Tier 1 OEMs.
While the company doesn't need to provide hardcore numbers with ranges far more than needed, Luminar should really highlight how this deal is additive to the 2022 ending order book that grew by more than 60% or partly included in such a deal. In essence, the company could've provided the total order book now in the $5-6 billion range, as most apparent by the deal details.
Only weeks ago, Luminar announced an expanded deal with Polestar ( PSNY ). The companies now plan to integrate Luminar's technology into the Polestar 5 to be launched in 2024. The Polestar 3 can now be ordered with Lidar from Luminar, with deliveries expected in 2024.
Luminar will likely address current order book totals at an investor day on Feb. 28.
False Narrative
While the stock soared nearly 30% to close at $7.40 following this expanded deal with Mercedes-Benz, Luminar still trades far below the SPAC price. In fact, Luminar hit $50 back in late 2020 due to the excitement over an autonomous driving future and the stock can't actually hold a rally with actual large-scale orders on the books now.
The future is now approaching quickly with the company lining up multiple auto deals for 2024 already. The calendar recently turned the corner to 2023 and investors should be far more interested in the Autotech story now than back in 2020 when the timeline for Lidar sensors was clearly years away.
The stock now has a market cap of only $2.7 billion despite the likelihood of an order book of $5+ billion now. The interesting part is that analysts only have the company generating $2.5 billion worth of revenues through 2026.
The question mark is whether this new order book total is through 2026 or 2027 now. The order book amounts dramatically grow as time moves beyond the forecasted inflection point in self-driving technology in the 2024 to 2025 timeframe while current revenues don't have much impact on the order book size.
The market clearly doesn't believe these orders are real or will end up being cancelled considering the stock hasn't rallied much in years now. Revenues will surge from $116 million this year to nearly $1.3 billion in 2026, assuming consensus estimates are accurate. At the least, the current order book suggests analyst estimates could end up low.
Luminar shouldn't trade at half of the current order book size or at just 2x 2026 sales targets. The current analyst targets have revenues growing at a nearly 70% clip in 2026 alone.
Stocks with this type of growth trade at 10x forward sales multiples by the year prior to the target. In essence, Luminar should trade at 5x the current stock price in the next couple of years, if the company hits those massive revenue targets.
Takeaway
The key investor takeaway is that Luminar is cheap stock in the Autotech sector. The market continues to look past the Lidar sensor players due to limited current revenues despite large order books confirmed by the largest auto manufacturers.
Investors should buy the stock on any further weakness heading into Investor Day next week where management likely provides a much higher order book to excite the market.
For further details see:
Luminar Technologies: Another Big Order, Still No Respect