Electric Aviation Backlog And Regulatory Tailwinds Will Support A Balanced Long Term Outlook

Catalysts

About BETA Technologies

BETA Technologies develops and sells electric aircraft, propulsion systems and charging infrastructure for aviation and defense customers.

What are the underlying business or industry changes driving this perspective?

• Although BETA has a deposit backed aircraft backlog of 891 units and an additional component backlog of more than US$1b, converting these into firm aircraft purchase agreements and timely deliveries depends on customers executing new electric aviation routes and pilot training plans. This could slow the pace at which backlog turns into recognized revenue and cash inflows.
• While the company is already generating contribution positive sales from propulsion products and charging infrastructure, scaling this full stack model worldwide requires continued build out of its charging network and interoperability standards. Any delays or regional constraints could limit the growth and margin contribution of high volume, recurring energy and aftermarket revenue streams.
• Despite clear regulatory momentum such as the Powered Lift advisory circular and the eVTOL Integration Pilot Program, BETA’s plan to begin CTOL operations and follow with VTOL aircraft still hinges on multi step FAA certification processes like engine approval and Part 23 aircraft conformity. Slippage in test or audit timelines could defer the ramp in aircraft and services revenue as well as delay progress toward EBITDA improvement.
• Although BETA’s vertically integrated approach to batteries, motors and composites is designed to keep more value in house, this also concentrates execution risk around manufacturing efficiency and supply availability for items like semiconductors and magnets. This could pressure gross margins and capital efficiency if throughput or cost reductions do not track the company’s planned production cadence.
• While the long term shift toward lower emission aviation and electrified defense systems underpins interest from partners like GE Aerospace, Embraer Eve and General Dynamics, future order volumes and follow on programs in areas such as hybrid powertrains, undersea propulsion and international defense contracts remain contingent on customer budget priorities. This could influence medium term revenue visibility and the path to earnings breakeven.

Assumptions

This narrative explores a more pessimistic perspective on BETA Technologies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming BETA Technologies's revenue will grow by 133.3% annually over the next 3 years.
• The bearish analysts are not forecasting that BETA Technologies will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate BETA Technologies's profit margin will increase from -2497.2% to the average US Aerospace & Defense industry of 8.4% in 3 years.
• If BETA Technologies's profit margin were to converge on the industry average, you could expect earnings to reach $30.9 million (and earnings per share of $0.11) by about January 2029, up from $-722.2 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 340.0x on those 2029 earnings, up from -8.7x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 39.3x.
• The bearish 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 7.64%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• If BETA converts more of its US$3.5b deposit backed aircraft backlog and more than US$1b component backlog into firm aircraft purchase agreements with defined delivery schedules, that could improve revenue visibility and cash generation beyond what a flat share price would imply. This may be particularly relevant if progress payments cover roughly 50% of aircraft selling prices ahead of delivery, supporting revenue and operating cash flow.
• Sustained growth in third quarter revenue of US$8.9 million and year to date revenue of US$24.5 million, together with contribution positive propulsion and charging products and a large, long duration aftermarket opportunity that is estimated at about US$13 million per US$4 million to US$4.5 million aircraft, could lead to better long term earnings and margin prospects than a stagnant share price would reflect, even while adjusted EBITDA remains a loss today.
• Regulatory and policy support such as the Powered Lift advisory circular, the eVTOL Integration Pilot Program and executive level backing for electric aviation and drone dominance, combined with BETA’s progress on FAA certification for the H500A engine, CX 300 CTOL aircraft and A250 VTOL aircraft, could accelerate commercialization of both civil and military platforms. This would likely have a positive impact on revenue and, over time, net margins.
• Large equity financings, including the US$300 million investment from GE Aerospace and approximately US$1.1b in net IPO proceeds, together with a reported cash balance of US$687.6 million at quarter end, extend BETA’s funding runway and reduce near term balance sheet risk. This could improve investor confidence relative to an expectation that the share price will simply hold steady.
• Expansion into adjacent defense and undersea propulsion programs with General Dynamics and DARPA, as well as the more than US$1b Eve motor and aftermarket contract and active discussions with additional airframers and foreign allies, broadens BETA’s exposure beyond its own aircraft platforms. This could diversify and increase long term revenue and earnings potential more than a flat share price would suggest for a vertically integrated supplier.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for BETA Technologies is $30.0, which represents up to two standard deviations below the consensus price target of $37.88. This valuation is based on what can be assumed as the expectations of BETA Technologies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $30.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $367.2 million, earnings will come to $30.9 million, and it would be trading on a PE ratio of 340.0x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $27.33, the analyst price target of $30.0 is 8.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.