Archer Aviation: Set To Take Flight After Deal Cut

Aug. 03, 2021 8:45 PM ETArcher Aviation Inc. (ACHR)JOBY, UAL30 Comments

Summary

Archer Aviation is a far better deal after the valuation was cut and the stock price has fallen 50%.
The company still appears on a path to releasing an eVTOL in 2024.
The stock faces too much SPAC closing risk with the stock below $10 to buy here.
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Only about 6 months ago, Atlas Crest Investment Corp. (ACIC) announced an exciting business development deal with Archer Aviation. The urban air mobility space was so exciting that the SPAC soared to a high of $18.60 back in February. After the stock has been cut in half and the deal value was slashed, my investment thesis is far more bullish on the eVTOL stock.

Deal Value Cut

While the concept of urban air mobility is exciting, Archer Aviation and several competitors don't expect meaningful revenues until at least 2024 and beyond. The deal originally had an equity value of $3.8 billion at the SPAC price of $10 per share. Any investor buying into the deal initially was paying upwards of $7.0 billion for a revenue story years away.

Finviz Chart

Source: FinViz

Last week, Archer Aviation and Atlas Crest agreed to cut the deal value from $2.7 billion to $1.7 billion. With the stock now trading below $10, an investor is paying a far lower valuation to obtain an investment in one of the leading eVTOL companies.

The company is still set to receive $1.1 billion worth of cash based on a fully committed $600 million PIPE at $10 per share and the additional $500 million held in trust raised via the original IPO. The market value would be ~$2.8 billion with an enterprise value of $1.7 billion, down substantially from the $7.0 billion market value at the peak.

Archer Aviation recently officially unveiled the Maker aircraft basically on schedule. In theory, the company is still on a path to aircraft production and sales starting in 2024 with revenue topping $1 billion in 2025, though all of these dates are highly dependent on FAA certification in the future.

The valuation cut for the deal doesn't exactly change any valuation metric when investors need 2025 or beyond revenues to justify either valuation. Archer Aviation does forecast 2025 EBITDA of $255 million leaving the stock trading at an EV/EBITDA multiple of ~7x those targets.

The valuation equation is clearly much more appealing at these levels compared to the original higher deal valuation and the much higher stock price. Investors should be skeptical on the company hitting these targets, but the relative valuation is far better now.

Archer Aviation even recently signed up Oscar Munoz as a new BOD member. The former CEO of United Airlines (UAL) should solidify the partnership where the airline is looking to spend up to $1 billion to acquire eVTOLs from the urban air mobility firm.

The reason United Airlines plans to invest in these aircraft is the strong revenue generation and profit potential. eVTOLs are estimated to generate up to $2.4 million in annual revenues while producing a profit of $1.1 million.

Source: Archer Aviation presentation

United Airlines is likely to use the Archer aircraft to funnel passengers to airports in congested cities for additional flights to generate additional revenue opportunities. Archer Aviation is expected to launch their own aerial ride sharing business to funnel passengers within congested city centers such as Los Angeles, NYC and Miami.

In this regard, Archer will benefit from both aircraft sales and a ride sharing business.

SPAC Vote

Shareholders still need to vote for the deal prior to the deal closing. ACIC now trades below $10 which could lead to shareholders redeeming shares and limiting the amount of cash Archer Aviation would receive at the close.

Some recant SPAC deal closings with significant redemptions crashed far below $10 following the deal close. As an example, ATI Physical Therapy (ATIP) had 26% of shares redeemed and the stock now trades near $4.

Investors should keep an eye on eVTOL competitor Joby Aviation closing their SPAC deal with Reinvent Technology Partners (RTP) on August 5. Similarly, the SPAC trades below $10 heading into the vote and investors should watch where the stock trades after the close and transfer to "JOBY" based on the amount of shares redeemed. This SPAC deal didn't even cut the deal at an even higher valuation of $6.6 billion.

Ultimately, Archer Aviation expects to list on the NYSE under the ticker symbol "ACHR". The company hasn't announced a shareholder vote date, but the original SPAC deal was announced a couple of weeks prior to the Joby Aviation deal that is potentially closing in a couple of days.

The Wisk Aero litigation remains a risk. Several top executives including the VP of Engineering came from Wisk.

Takeaway

The key investor takeaway is that Archer Aviation is a far more appealing stock after the deal valuation cut, but also the stock still faces risk with the SPAC trading below $10 heading into the deal close. Investors should watch the Joby Aviation vote and related stock trading this week before making any decision on whether to purchase Archer Aviation before the SPAC deal closes.

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Summary

Deal Value Cut

SPAC Vote

Takeaway

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