Government Reforms And NASA Contracts Will Expand Commercial Services

Key Takeaways

• Expansion into new markets and service models could broaden service footprint and potentially increase revenue.
  
• Strategic investments and upcoming contracts could enhance profitability and expand revenue streams.
  
• Challenges include higher SG&A costs, NASA contract uncertainties, competition, mission risks, and capital expenditure pressures affecting growth, profitability, and cash flow.

Catalysts

Designs, manufactures, and operates space products and services in the United States.

• Intuitive Machines is expanding its reach into new markets and customers beyond lunar missions, particularly by leveraging government changes that emphasize commercial service models over large government-owned programs. This is expected to broaden their service footprint, potentially increasing revenue.
  
• The company's investment in data transmission services and infrastructure as a service, including the deployment of data relay satellites, aims to create high-margin, recurring revenue streams, which could positively impact net margins and earnings.
  
• Intuitive Machines has strategic plans to use its strong cash position for high-return opportunities, including potential acquisitions and internal innovations, likely contributing to future revenue growth and enhanced profitability.
  
• The new federal government acquisition strategy aligns with Intuitive Machines' business model, providing an opportunity to expand customer base and diversify services, which could lead to increased revenues and improved margins.
  
• Upcoming NASA and commercial contracts, such as the near space network services contract and the potential award for lunar terrain vehicles, present opportunities for substantial revenue growth and margin expansion if successfully secured.

Intuitive Machines Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Intuitive Machines's revenue will grow by 24.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -124.7% today to 3.6% in 3 years time.
• Analysts expect earnings to reach $15.8 million (and earnings per share of $0.14) by about May 2028, up from $-284.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $20.2 million in earnings, and the most bearish expecting $11.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 247.6x on those 2028 earnings, up from -3.5x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 31.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.24%, as per the Simply Wall St company report.

Intuitive Machines Future Earnings Per Share Growth

Risks

• The higher operating loss in the fourth quarter, driven by increased SG&A expenses due to public company costs, compensation, and additional office leases, could impact net margins and delay profitability.
  
• The ongoing shift in NASA contracting and potential impacts of governmental efficiency efforts might lead to uncertainties or changes in funding allocation and project timelines, affecting revenue stability.
  
• Intuitive Machines faces competition in space data services and lunar commercialization, which could pressure future revenue growth and market share.
  
• The inherent risks and complexities of space missions, such as potential subsystem faults or unexpected mission outcomes, can lead to financial losses and impact earnings if missions require additional resources or do not meet contractual success milestones.
  
• A shift towards infrastructure and data services involves significant capital expenditure, which may strain cash flow if anticipated higher-margin service revenues do not materialize at expected levels.

Valuation

• The analysts have a consensus price target of $14.857 for Intuitive Machines based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $12.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $441.2 million, earnings will come to $15.8 million, and it would be trading on a PE ratio of 247.6x, assuming you use a discount rate of 6.2%.
• Given the current share price of $8.6, the analyst price target of $14.86 is 42.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.