Luminar Technologies: Guidance Doesn't Warrant A Big Buyback

Mar. 01, 2022 11:53 AM ETLuminar Technologies, Inc. (LAZR)AMBA18 Comments

Summary

  • Luminar Technologies continues making progress towards launching series production of Lidar sensors.
  • Unfortunately, the company only guided to 2022 revenues of $40+ million despite an order backlog heading towards $3 billion this year.
  • The company unwisely spent $300 million in share buybacks despite being in a major investment cycle.
  • The stock will likely trade flat until more analyst coverage and actual confidence in the order book turning into future revenues.
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Luminar Technologies (NASDAQ:LAZR) continues to rapidly expand their Lidar sensor order backlog, but the market wants to see more actual revenues. Last year, the company launched a large stock buyback unwarranted based on 2022 guidance. My investment thesis remains Neutral on the stock until the market has more confidence in the business model and shifts focus to the order book.

Revenue Vs. Order Book

The market is in no mood to reward Lidar sensor stocks based on large order books. In an aggressive growth environment where interest rates aren't being hiked by the Fed, Luminar Technologies might get a major boost from increasing the order book while revenue levels are still low.

For Q4'21, Luminar Technologies reported revenues jumping to $12.3 million solidly beating estimates. The problem here is that the company only guided to 2022 revenues of $40+ million, though the number is above the original SPAC deal guidance of $35 million. Without some big beats during the year, the average quarterly revenues will dip below the last quarterly revenues.

Revenue slide

Source: Luminar Tech. Q4'21 presentation

If the stock would trade based on the forward-looking order book, Luminar might see a solid rally in the next year. The order book reached $2.1 billion for 61% growth during 2021 topping original targets of $1.8 billion. Normally, a $300 million revenue/order beat will boost the related stock.

A wide gap exists between the current order book of $2.1 billion and the guidance for 2022 revenue of $40+ million. In essence, Luminar forecasts over $2 billion worth of revenues already ordered that won't materialize for years.

A lot of the autonomous vehicle contracts aren't expected to really ramp until 2024 and beyond explaining the large order book without any current revenues. The market probably won't reward the stock in a scenario where questions exist on how much of the order book is guaranteed because AVs could easily slip several years leaving Luminar eating large losses.

The company is guiding to 40% growth in the forward-looking order book this year. The target is to end 2022 with a massive order book of $2.9 billion with new orders of over $840 million in a year where revenues only grow $8+ million. In a lot of ways, the additional orders are an indication of revenues around 2025. Luminar originally provided a similar revenue target for 2025 when major AV programs start.

The company burned $56.4 million in cash during the quarter and $155 million for the year to advance R&D and build up a manufacturing plan. The guidance for cash burn to moderately top 2021 levels is not an environment for stock buybacks. Luminar had to issue $625 million in convertible debt to complete the $300 million share buyback in order to leave the cash balance at $792 million.

The net cash position is only $167 million now for a company forecast to burn a similar amount in 2022 while remaining years away from positive cash flows. The big issue with the buyback plan is this lack of cash no matter how cheap the stock is currently compared to the order book.

Order Book Value

Investors should probably start valuing the Lidar sensor stocks based on order books. Unfortunately, the market probably doesn't have much confidence in the order books with limited analyst coverage in the sector due to SPAC deals.

Right now, Luminar only has 7 analysts covering the stock with just 5 Buy ratings. The major chip stocks have 25 analysts covering their stocks with even Ambarella (AMBA) having 16 analysts per TipRanks.

TipRanks Analyst chart

Source: TipRanks

If the 2022 order book increase of $840 million was seen more similar to sales, Luminar could trade with a valuation of $8.4 billion at 10x sales targets. Another solid year of adding $1 billion to the order book could warrant a $10 billion stock price.

Luminar announced a major deal with Mercedes-Benz along with 5 major automotive deals in 2021. The only real question is a matter of timing of production for these deals. The company forecast major series production to start at the end of 2022 and to end 2025 with an order book of $10+ billion after reporting over $800 million in quarterly revenues during 2025. Luminar would have to add another $9+ billion worth of orders by 2025 in order to boost the backlog while generating around $1 billion in revenues during the period.

Takeaway

The key investor takeaway is that while Luminar should start trading based on the order book, the stock isn't likely to achieve much in the way of gains this year during the Fed tightening cycle. Investors should continue watching the stock from the sidelines with the $5+ billion market valuation too stretched for the current market environment and little confidence in the sector.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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