Intuitive Machines Unlocks New Achievement, But Caution Is Warranted

Summary

• Intuitive Machines achieved a new milestone yesterday with the successful launch of the Nova-C lander toward the Moon, which is expected to land on the lunar surface by February 22.
• Nova-C carries five NASA payloads designed to support future Moon expeditions, including experiments to analyze lunar ice and radiation.
• In a report published in 2022, NASA outlined how the agency is embracing a commercial-oriented approach in its Artemis program. This is good news for private space companies.
• According to PwC, the lunar transportation market will be worth at least $55 billion by 2040, Intuitive Machines is well-positioned to benefit from this growth.

GREGG NEWTON/AFP via Getty Images

Almost a year ago, I was attracted to Intuitive Machines, Inc. (NASDAQ:LUNR) because of its healthy relationship with regulators, first-mover advantages in many aspects of the lunar economy, the space race between the U.S. and China, and the competent management team leading the company. However, I made the case for a wait-and-see approach as none of these factors, in my opinion, guarantee robust earnings growth in the long term. Since then, LUNR stock has lost over a fourth of its value, pushing the company into more realistically valued territory.

To make things more interesting, Intuitive Machines unlocked a new achievement yesterday with the company's Nova-C lunar lander successfully initiating its journey toward the Moon. The lander is attempting to reach the south pole of the Moon, and if successful, this would mark the first lunar touchdown by a private spacecraft.

After analyzing this recent milestone and the company's progress in winning new contracts, I have decided to maintain my hold rating for LUNR.

The New Milestone

Intuitive Machines' launch of the Nova-C lander, which plays a central role in the IM-1 mission, is an important step forward in the commercialization of space. This launch highlights the company's engineering and designing capabilities and potentially the viability of private space companies as key players in NASA's Artemis program as well. Nova-C is expected to attempt its first landing on February 22.

Exhibit 1: The landing site

IM-1 press kit

Nova-C carries five NASA payloads designed to support future Moon expeditions, including experiments to analyze lunar ice and radiation – fundamental to long-term human operations. NASA is paying $118 million to Intuitive Machine to deliver this scientific equipment to the Moon. The lander, according to Intuitive Machines, utilizes several innovative technologies for course correction and landing precision.

LUNR stock jumped more than 34% yesterday with the successful launch of the lander and is up almost another 20% in pre-market trading at the time of writing this article. This investor enthusiasm stems from the broad range of possibilities that would open up if this mission turns out to be a success.

Intuitive Machines is participating in NASA's Commercial Lunar Payload Services initiative, which aims to strategically develop a lunar economy through public-private partnerships. The IM-1 mission will play a critical role in proving the company's commercial viability as a future partner of NASA. In this context, this mission is more like a stepping stone for the company to prove its technology, innovation, and reliability at a more practical level.

The Lunar Economy: A Paradigm Shift In Space Exploration

Until recently, space exploration was almost exclusively limited to government agencies. Today, the tables are turning with NASA increasingly wanting to be a customer of private space companies that offer space exploration services. Make no mistake, government influence on this sector will still be at a very high level because of the national importance of this sector, but we are seeing a positive trend in favor of private space companies.

In a report published in 2022, NASA outlined how the agency is embracing a commercial-oriented approach in its Artemis program.

Exhibit 2: NASA's changing approach

NASA

With private space companies increasingly getting involved in space exploration, I expect the lunar economy to come to the spotlight in the coming years as one of the fastest-growing markets in the space sector.

The Moon, according to scientific studies, is home to several valuable resources.

• Water Ice: can be a source of hydrogen for fuel and oxygen for breathing.
• Helium 3: can be used for application in the clean energy generation process.
• Rare Earth metals: used in manufacturing electronics.

With these valuable resources expected to be sourced and transported to the Earth in the future, the lunar transportation market is expected to be one of the fastest-growing sectors within the lunar economy. According to PwC, the lunar transportation market will be worth at least $55 billion by 2040.

Exhibit 3: Lunar transportation market growth

PwC

As illustrated below, the public sector involvement in this market is expected to gradually decline, which highlights the growing opportunity for private sector companies such as Intuitive Machines.

Exhibit 4: Distribution of the lunar transportation market value

PwC

Within this growing market, I believe Intuitive Machines is well-positioned to become a logistics solutions provider to deliver payloads to the Moon for scientific exploration, resource surveying, and infrastructure development.

The Strategic Direction Is Plausible, But Still Too Early To Pull The Trigger

Intuitive Machines, in my opinion, is making the right moves to benefit from the improving prospects for the private space exploration sector.

The company is planning well for IM-2 with helicopter testing, assembly of propulsion and structural components, and integration of NASA's ice mining drill and commercial payloads underway. Based on the learnings of the IM-1 mission, I believe the company's second mission will attract high-value payloads.

Intuitive is investing in expanding its capabilities as well. For instance, the company is expanding its Lunar Data Services business to support communication needs in the Cislunar market, providing communication capabilities between assets using Nokia’s 4G/LTE on the lunar surface. In addition, the Mission Controls team has completed the required ground station interface checks to ensure the tracking network is operational 24/7.

The company recently secured a $16.8 million contract from a leading international space agency for delivering two payloads through its Lunar Rover services. The backlog of the company remains strong, with Intuitive ending Q3 with $135 million in contracted backlog, excluding the $719 million NASA OMS 3 contract.

Amid all this progress, as a long-term-oriented investor, I remain skeptical about the long-term growth potential of Intuitive Machines as the space exploration market still has substantial room for disruption. Intuitive, for now, is not enjoying quantifiable competitive advantages, although the company may benefit from first-mover advantages in certain markets. I think it would be best to analyze the success of the IM-1 mission to draw more conclusions about the company's potential to grow profitably.

Takeaway

Intuitive Machines achieved a new landmark by successfully launching the Nova-3 lander toward the Moon. The landing is expected to occur by February 22. The company seems to be enjoying a long runway to grow alongside the expected growth of the lunar economy, but its long-term earnings growth potential hinges on the early success of key missions, including the IM-1 mission. For this reason, I am maintaining my hold rating until we have more data to analyze how the expected success of IM-1 will translate into financial gains.

Analyst’s 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.