International Expansion And Alliances Will Shape Our Future

Key Takeaways

• Strategic focus on international expansion and regional partnerships aims to boost revenue and global presence through successful pilots and enduring programs.
  
• Targeting defense and security sectors, alongside AI-driven solutions and acquisitions, could support sustainable growth and improved margins.
  
• Revenue variability and high costs due to government delays and necessary R&D investments could negatively impact margins and overall financial performance.

Catalysts

Provides artificial intelligence-powered decision intelligence solutions.

• BigBear.ai plans to expand internationally by converting successful pilots into enduring programs and building regional partnerships with leading companies, potentially increasing revenue and global market presence.
  
• The company is focused on business alliances and strategic acquisitions, which could drive faster innovation and open new revenue streams by accessing additional markets and technologies.
  
• BigBear.ai is targeting opportunities in defense, security, and infrastructure, capitalizing on increased federal spending and shifting procurement practices towards efficiency and advanced commercial technologies, potentially boosting revenue and long-term contracts.
  
• With a healthy backlog of $385 million and increased emphasis on multiyear programs, BigBear.ai is positioned to build a stable revenue stream, supporting sustainable growth and improved net margins.
  
• Continued investment in AI-driven solutions and leveraging proprietary technologies like Pangiam, veriScan, and ConductorOS can enhance product offerings, driving efficiency gains and supporting potential increases in gross profit margins.

BigBear.ai Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BigBear.ai Holdings's revenue will grow by 9.0% annually over the next 3 years.
• Analysts are not forecasting that BigBear.ai Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate BigBear.ai Holdings's profit margin will increase from -143.7% to the average US IT industry of 7.8% in 3 years.
• If BigBear.ai Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $16.1 million (and earnings per share of $0.05) by about May 2028, up from $-229.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 135.2x on those 2028 earnings, up from -4.3x today. This future PE is greater than the current PE for the US IT industry at 36.3x.
• 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 8.2%, as per the Simply Wall St company report.

BigBear.ai Holdings Future Earnings Per Share Growth

Risks

• The company's revenue is reported as being lumpy, meaning it can fluctuate significantly depending on the timing of contract awards and milestone achievements, posing a risk to consistent revenue streams.
  
• Delays in government procurement and funding can create temporary variability and excess resource capacity, potentially affecting revenue and margins in the short term.
  
• The company has faced significant noncash losses, including those related to the increase in fair value of derivatives, which could affect net margins and earnings.
  
• Increased R&D expenses, as well as higher recurring SG&A costs due to government funding delays, contribute to negative adjusted EBITDA, impacting overall earnings.
  
• The necessity to continually invest in R&D and technology while managing government delays and funding could strain resources and impact net margins if efficiencies are not achieved.

Valuation

• The analysts have a consensus price target of $4.833 for BigBear.ai Holdings 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 $6.0, and the most bearish reporting a price target of just $3.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $207.0 million, earnings will come to $16.1 million, and it would be trading on a PE ratio of 135.2x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $3.36, the analyst price target of $4.83 is 30.5% 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.