Electrified Aviation Adoption Will Drive Long Term Aftermarket Revenue And Margin Expansion

Catalysts

About BETA Technologies

BETA Technologies designs and manufactures electric aircraft, propulsion systems and interoperable charging infrastructure for cargo, medical, defense and regional aviation customers.

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

• Rapid global shift toward lower cost, lower emission aviation and the inevitability of electrified flight position BETA's certified chargers, electric engines and aircraft as early beneficiaries, supporting a long runway of revenue growth and eventual margin expansion as scale benefits accrue to manufacturing and operations.
• Deposit backed backlog of 891 aircraft, a component backlog exceeding $1 billion and hundreds of additional aircraft under active negotiation create high visibility on future deliveries, underpinning multi year revenue growth and improved earnings leverage as fixed engineering and certification costs are absorbed over a larger installed base.
• Vertically integrated ownership of batteries, motors, flight controls and charging infrastructure, combined with reuse of common components across CTOL, VTOL and military variants, should structurally lower unit costs and support stronger long term gross margins and free cash flow as production ramps.
• Explosive long term demand for energy storage replacement and service on working electric fleets, with management estimating roughly $13 million of aftermarket opportunity per $4 million to $4.5 million aircraft, implies a durable, high margin recurring revenue stream that can materially lift net margins and stabilize earnings through cycles.
• Growing adoption of electric aircraft in cargo, medical logistics, regional connectivity and defense applications, supported by policies such as the EIPP and international defense spending, expands BETA's total addressable market and mix of commercial and military contracts. This creates multiple diversified revenue pillars and may accelerate the path to profitability.

Assumptions

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

• The bullish analysts are assuming BETA Technologies's revenue will grow by 199.1% annually over the next 3 years.
• The bullish 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 $65.0 million (and earnings per share of $0.23) by about December 2028, up from $-722.2 million today.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 241.8x on those 2028 earnings, up from -9.7x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 37.3x.
• The bullish 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 7.59%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• BETA remains deeply loss making in the near term, with Q3 adjusted EBITDA of negative $67.6 million and full year 2025 guidance of negative $295 million to negative $325 million. If industry wide certification or adoption of electric aviation proves slower than expected, the company may face an extended period of heavy R&D and SG&A investment without sufficient scale, delaying or eroding future earnings and net margins.
• The business model depends heavily on long term aftermarket battery and service revenue that is estimated at roughly $13 million per aircraft over a life of up to 20 years. If actual utilization, flight hours, or replacement cycles come in below expectations due to regulatory constraints, operational issues or competing technologies such as hybrid or hydrogen, the company could see structurally lower recurring revenue and weaker gross margins.
• Although BETA highlights a deposit backed aircraft backlog of 891 units and a more than $1 billion component contract with Eve, these are concentrated exposures to a small number of early adopters in a nascent market. Any cancellations, deferrals, pricing pressure or delays in converting deposits into firm APAs with milestone payments would directly impact revenue visibility, cash flow and earnings leverage.
• Long term growth assumes successful certification and industrialization of multiple complex platforms, including CTOL, VTOL and military variants powered by new electric and hybrid systems. Any slippage in FAA approvals, durability testing, or ramp execution, especially in an environment of supply chain risk and advanced manufacturing complexity, could push out delivery schedules, compress margins and increase required capital spending.
• The company is pursuing capital intensive expansion in several regulated and politically sensitive verticals such as defense, undersea propulsion and international airport electrification. Adverse changes in government priorities, budget allocations, export controls or geopolitical tensions could slow or curtail these programs, reducing high margin system and services revenue and limiting future improvements in net margins and earnings.

Valuation

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

• The assumed bullish price target for BETA Technologies is $45.0, which represents up to two standard deviations above 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 bullish 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 bullish analyst cohort, you'd need to believe that by 2028, revenues will be $773.5 million, earnings will come to $65.0 million, and it would be trading on a PE ratio of 241.8x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $30.56, the analyst price target of $45.0 is 32.1% 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.