Analyst Says Drone Co. Poised to Benefit From Growing Demand for Small UAVs
Source: Glenn Mattison (6/14/24)
According to a Ladenburg Thalmann research note, Red Cat Holdings Inc. (RCAT:NASDAQ) is poised to benefit from growing UAS demand. Read on to see the rating and target price given to the company.
Ladenburg Thalmann analyst Glenn Mattson initiated coverage on
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2024/6/17 16:21:08
"Red Cat Holdings Inc. (RCAT) has attained key government approvals, paving the way for participation in large contracts. The company's lead unmanned aerial vehicle (UAV) the Teal, is now in the second and third generation of development," Mattson noted. "The product is portable by rucksack and can give soldiers in the field situational awareness in the form of intelligence, surveillance, and reconnaissance (ISR) as well as provide offensive capabilities in the form of loitering munitions delivery systems."
The analyst highlighted that the Teal 2, Red Cat's lead product, has been designated as Blue UAS certified by the Defense Information Unit (DIU), a subsidiary of the U.S. Department of Defense (DoD). This certification allows U.S. armed forces to rapidly prototype and deploy UAS technology.
Mattson also discussed the impact of the American Safety Drone Act (ASDA), which was passed as part of the December 2023 National Defense Authorization Act (NDAA). The ASDA requires that no federal dollars can be used to purchase drone technology from certain adversarial nations, and the U.S. government has stated that one secondary goal of the program is to accelerate the development of the U.S. drone industrial base.
"Along with these government mandates, the DoD has significant large programs of record such as the short-range reconnaissance (SSR) and the Replicator program. The SSR is in the final selection stages, and RCAT is one of two companies down-selected for a likely multi-hundred million program," Mattson stated.
The analyst's financial model suggests that Red Cat's top-line growth is more dramatic than it appears, given the recent divestitures of the consumer divisions.
"Essentially the Teal 2 has gotten to a nearly US$30 million run rate in revenue up from zero over just the past 12 months. We model more than 50% top-line growth in F:25 (April) given swelling demand across the NATO and NATO friendly countries," Mattson explained.
Ladenburg Thalmann's valuation of Red Cat is based on a multiple of the company's projected revenue run rate. "We use 5x our 4QF:25 exit run rate revenue, to achieve our price target of US$4 per share and initiate coverage of RCAT with a Buy rating," Mattson stated.
