In November and early December 2024, flying taxi manufacturer Archer Aviation Inc. New York Stock Exchange: ACHR gained momentum: in the month leading up to December 6, the urban air mobility company’s share price rose by almost 139%. As the harbinger of a promising new industry, Archer sparked a shift in investor interest. Other companies in the aerospace and defense market could also benefit.
Why does Archer float?
Archer Aviation today
(As of 12/06/2024 ET)
- 52 week range
- US$2.82
▼
$9.84
- Target price
- $9.33
Before looking at the industry as a whole, it’s worth taking the time to examine some of the factors contributing to Archer’s recent success. Archer is a participant in the emerging electric vertical takeoff and landing (eVTOL) aircraft industry. Earlier this fall, Soracle, a Japanese joint venture between Japan Airlines and Sumitomo Corp., boosted ACHR stock by agreeing to buy 100 of the company’s Midnight jets for a total of up to $500 million.
Stellantis N.V. New York Stock Exchange: STLA was also instrumental in Archer’s success, with the Dutch auto company investing at least $370 million in Archer to aid its manufacturing efforts. However, on December 1, Stellantis CEO Carlos Tavares abruptly resigned, potentially jeopardizing the firm’s support for Archer. The news sparked a brief sell-off in Archer shares earlier in the month, although by the end of the first week of December, investor confidence in the Stellantis agreement appeared to have risen again as shares moved higher again.
Analysts remain bullish on Archer despite all its recent gains, setting a consensus price target that is still nearly 22% above current price levels.
What does this mean for other airline companies?
Joby Aviation Today
(As of 12/06/2024 05:53 PM ET)
- 52 week range
- $4.50
▼
$9.33
- Target price
- $8.35
One of Archer’s main competitors in the eVTOL space is Joby Aviation Inc. NYSE: JOBSwho also recently experienced a rally, but fell short of Archer’s achievements. JOBY shares are up nearly 60% in the month leading up to Dec. 6, but are up only 28% over the past year after high levels of volatility over the summer.
Like Archer, Joby is likely to benefit by year’s end from new FAA rules that will help eVTOLs take off. However, the company’s path to commercialization of its product is not as clear as Archer’s, and it risks missing out on industry-first privileges that would likely go to the company that can successfully bring eVTOL to market the fastest.
Wider range of aerospace and defense industries
Other companies in the broader aviation and aerospace industry have also grown recently, although not as much as Archer. Elbit Systems LLC NASDAQ:ESLT– a developer of various systems for use in both military and commercial aircraft is one example. Elbit shares rose nearly 8% in the month to Dec. 6, helped by a record third-quarter backlog of $22 billion and revenue of $1.7 billion. However, ESLT shares are up just 20% over the past year, underperforming the broader market over that period.
As a defense company, Elbit also sells unmanned aircraft systems, ammunition and related products; sales of these products have increased as a result of ongoing unrest in the Middle East. And with a P/S ratio of 1.7, this company may still be undervalued.
Loar Holdings Inc. New York Stock Exchange: LOAR This is another example of an aerospace and defense company that has seen its stock price bounce slightly over the past month. Like Elbit, the company’s shares rose about 8% from early November to December 6th. While the company beat analysts’ earnings per share estimates in its latest earnings report thanks to strong revenue and adjusted EBITDA margin, it adjusted some of its forward guidance downward. in anticipation of higher interest expenses associated with recent acquisitions.
Loar shares outperformed Elbit last year, rising 84% in that time. However, analysts only rate the stock a Moderate Buy and believe the price could fall 5% based on the consensus price target.
eVTOLs take off
eVTOL companies led by Archer appear particularly noteworthy for investors heading into 2025. As the race for commercialization continues, this will no doubt continue to be closely watched. Meanwhile, some parts of the wider aerospace industry have potential for growth but appear to have failed to match Archer’s pace in recent months.
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