By Brian Lantier, CFA
NASDAQ:HOVR
READ THE FULL HOVR RESEARCH REPORT
New Horizon Aircraft (referred to as "Horizon Aircraft" or "Horizon") (NASDAQ:HOVR) recently released the company's first-quarter financial results for the period ended 8/31/25 and offered several updates, including the selection of the company's propulsion system for the Cavorite X7 and the announcement of a grant to work on the development of an all-weather eVTOL system.
First Quarter Results
Horizon’s first-quarter results primarily reflect its costs, which were roughly in line, except for non-cash stock compensation expenses. R&D costs were CAD 2.7 million ($2.0 million) for the quarter, reflecting additional engineering talent acquired in fiscal 2025 and investments in flight software, testing, and prototype manufacturing. The company's general and administrative costs, CAD 3.2 million ($2.3 million), were above our forecasts primarily due to the recognition of stock-based compensation expenses in the quarter. As these are annual awards, we anticipate G&A expenses returning to more normalized levels through the end of fiscal 2026.
The company's share count has continued to grow due to equity issuance to fund the development of the Cavorite X7. While we continue to expect the company to access the capital markets when it is advantageous, we project a slower rate of growth in outstanding shares until the middle of fiscal 2027, when we anticipate a larger financing round after the company completes its full-scale demonstrator model.
New Horizon Selects Pratt & Whitney Canada PT6A engine
The company announced in mid-October that it had signed a purchase agreement with Pratt & Whitney Canada for the Pratt & Whitney PT6A turboprop engine, which will provide horizontal propulsion of the Cavorite X7.
We anticipate that when the Cavorite X7 reaches the market, it will be viewed as a turboprop jet with vertical takeoff and landing capabilities. With that view of the market, the Pratt & Whitney PT6A was the logical choice to power the aircraft when cruising. Of the top turboprop jets reviewed in 2024 by flyjetoptions.com, all seven use a version of the PT6A to power their aircraft, which gives some indication of the dominance of this engine in the market.
New Horizon Awarded CAD 2.0 million to fund work on an all-weather eVTOL
Last week, the company announced that it had been awarded a grant to help fund an all-weather eVTOL project with the University of Toronto and Flight Centre of Excellence.
The appeal of the Cavorite X7 for INSAT (beyond simply being a Canadian-based aerospace project), is that Horizon projects that the Cavorite X7 will have significantly lower emissions relative to traditional helicopter alternatives (due mainly to the increased efficiency that planes achieve relative to a helicopter) and Horizon's stated goal that they will develop the Cavorite X7 to be certified to fly in known icing conditions which would have obvious advantages over other eVTOLs and helicopters in northern climates.
The initial work of the project will focus on "ice detection and protection technologies" developed at the University of Toronto. After this work is complete, the focus will shift to applying these technologies to Horizon's Cavorite X7.
VALUATION TARGET
Keeping pace with the daily fluctuations in the price of Horizon's shares has been a challenge as the industry has become a darling of investors. We established a 12-month price target of $2.00 per share on September 11th, representing 20% upside from the September 10th closing price, yet the stock surged past that price in less than a week (ultimately trading over $4.00/share in mid-October). The stock has also gained a larger online following in many retail and day-trading forums, which has added to the volatility of the shares.
We would also note that the broader market is trading at record valuations across several traditional measures, and companies like Joby are trading at prices 30% above their average target prices established by covering analysts. Additionally, investor mania in several pre-revenue industries, such as small modular nuclear reactors, quantum computing, and eVTOLs, has led several companies that are years from generating revenue to see their share prices increase 5-10-fold in the last 12 months, making it a challenge to apply traditional revenue measures.
We expect increased volatility in the eVTOL sector in 2026 as funding challenges emerge for some companies while others have their vehicles certified and begin commercial operations. We do not expect Horizon Aircraft's shares to move in a straight line to our target valuation. It is likely that, at various points over the next twelve months, the shares could trade above or materially below our target, and we would encourage investors to use that volatility to their advantage.
We have maintained our DCF model's discount rate at 17% for the time being, and we will likely have to adjust it several times over the coming decade as various factors affect the likelihood of Horizon Aircraft's success. As we have now completed one quarter of fiscal 2026, we have added our fiscal 2034 estimates to our cash flow model, and our DCF target valuation benefits from our expectation that the company will be a major aircraft supplier in 2034. Our new 12-month target price for the shares is now $3.25, representing nearly a 30% upside from the current price. As we've noted, there will be a great deal of news flow from industry leaders in the coming weeks and months, and investors will need to be aware of any meaningful announcements from these companies.
We would encourage investors to review our full updated report for additional details on recent news releases and an eVTOL industry update.
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