By Brian Lantier, CFA
NASDAQ:HOVR
READ THE FULL HOVR RESEARCH REPORT
We are initiating coverage of New Horizon Aircraft Ltd (NASDAQ:HOVR) with a 12-month valuation target of $1.25 per share. New Horizon is an early-stage aircraft OEM that is still developing its first commercial aircraft, the Cavorite X7.
The Cavorite X7 will be a 7-seat vehicle (6 passengers and one pilot) that will be capable of vertical takeoffs and landings like a helicopter, but once airborne, the aircraft will fly the majority of its miles as a traditional fixed-wing aircraft with a propeller powered by aviation fuel. Based on initial testing and modeling conducted by the company, it is expected to have the capacity to travel at a speed of up to 250 miles per hour with a range of over 500 miles.
The company expects to target the regional air mobility market with the Cavorite X7 and anticipates that demand will come from emergency service providers (medical and disaster response), intercity travelers, and the military.
Key reasons to own Horizon Aircraft shares:
➢ The Cavorite X7 is a unique approach to solving the problem of regional air mobility by offering a hybrid approach that utilizes electricity to power vertical takeoff and landing while using existing technologies (conventional fuel and fixed-wing design) to achieve horizontal flight. By combining these approaches, it is expected that the Cavorite X7 will offer the ability to travel further and faster than existing options in the vertical takeoff world (principally helicopters). Also, by utilizing traditional fuel and a propeller, the Cavorite X7 will significantly exceed the range capacity of nearly all proposed eVTOLs we've reviewed while expanding the landing possibilities of fixed-wing aircraft to more remote locations not currently served by regional airports.
➢ We believe the team at Horizon Air has carefully analyzed the market to build a product that will find demand in the market. Rather than building a product for a potential market that has yet to develop (like the "air taxis" envisioned by many eVTOL players), Horizon's team is building a product to address the greatest weakness of helicopters and small aircraft markets. While any new aircraft design will inherently face challenges, building an aircraft with a clear end-market in mind is a sensible approach.
➢ We believe that the company's current valuation accurately reflects the substantial risks of bringing a new aircraft to the market. As the company achieves certain milestones on its path toward certification of the Cavorite X7, investors should reevaluate that risk discount. We think the valuation should improve if the company stays on track to commercialization by 2030. On balance, we believe the risk-reward is attractive at the current levels for investors willing to speculate on a high-risk venture.
Most investor attention in the emerging market for new aircraft is focused on the high-profile, fully electric vehicles that plan to offer vertical takeoff and landing, targeting the intracity "air taxi" market. The high-profile eVTOL companies have significant advantages in terms of both engineering prowess and financial resources, but in an emerging market like eVTOLs, we do not expect it to be a "winner-take-all" as many different models may succeed. We will discuss the competitive landscape in greater detail in our full report.
The pathway from Horizon Aircraft's current position as a manufacturer with a half-scale prototype to complete certification of the aircraft is likely to require a great deal of human and financial capital that substantially exceeds the current company's structure. We have noted the recent additions of new engineering talent as the company begins to ramp up its development. Today, the company is similar to an early-stage venture capital-backed startup because the challenges are significant, and the commercialization of the project is not assured. However, if the company is successful, the rewards for investors at this stage could mimic those offered by early-stage private investments.
In the full report, we review the eVTOL market and Horizon Aircraft's positioning in that market, and thoroughly review the development milestones to watch for. We follow with an in-depth description of ideal use cases and the potential competitive advantages of the Horizon Cavorite X7. The report reviews the current solutions in the regional air and the various solutions currently in development. In closing, we discuss some of the high-profile failures in the industry, and we conclude the report with our valuation. We discuss that meaningful revenues will not likely be recognized until the beginning of the next decade, and our initial assumptions on pricing for the Cavitation X7. Based on these assumptions and our DCF analysis, we have established an initial 12-month target valuation of $1.25 per share.
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