Source: Streetwise Reports (8/8/23)
The U.S. Defense Logistics Agency (DLA) is buying 172 drones for US$2.6 million from this company, which one analyst says builds “best-in-class” unmanned aircraft systems.
Red Cat Holdings Inc. (RCAT:NASDAQ) announced that the U.S. Defense Logistics Agency (DLA) is buying 172 Teal 2 drones for US$2.6 million from subsidiary Teal Drones.
The order was requested by the U.S. Air Force Security Forces for defending bases and installations and was sourced by global operations support company Noble Supply & Logistics LLC.
The Teal 2, designed as a leading unmanned aircraft system (UAS) for night operations, has been approved through the U.S. Department of Defense and is equipped with advanced high-resolution thermal imaging.
“The Teal 2’s industry-leading night-vision capabilities will be a strong asset in helping the Air Force to secure airfields and bases after dark,” said Red Cat Chief Executive Officer Jeff Thompson.
“Looking forward, ThinkEquity expects Red Cat’s revenue and operating income to increase,” ThinkEquity analyst Ashok Kumar wrote in March. “The investment bank estimates revenue will reach US$11.9 million in FY23 and then more than triple to US$37 million in FY24.”
Puerto-Rican-based Red Cat has deployed 200 new high-speed drones on behalf of Ukraine and is also in an ongoing US$90 million deal to provide drones for the U.S. Customs and Border Patrol (CBP).
Drone technology is changing military dynamics worldwide. The Ukraine conflict has raised awareness of their capabilities on the battlefield and has increased defense spending in the West.
The company’s increased entrenchment within U.S. military complex bodes well for additional large contract awards going forward, especially the SSR Tranche 2 program that is expected to be worth over US$300 million and awarded within 12 months.
“Looking forward, ThinkEquity expects Red Cat’s revenue and operating income to increase,” ThinkEquity analyst Ashok Kumar wrote in March. “The investment bank estimates revenue will reach US$11.9 million in FY23 and then more than triple to US$37 million in FY24.”
The Catalyst: A ‘Best-in-Class’ Drone
The firm finished building out its state-of-the-art facility in Salt Lake City, Utah, and invested in raw materials, drones in production, analyst Kumar wrote. This “should support strong sales over 2023,” he wrote.
“Revenue drivers include the infrastructure opportunity, current and future contracts with the [U.S.] Border Patrol and the Short Range Reconnaissance program,” Kumar explained.
“It is thought very likely that it will do so before much longer, and this being so, the stock is believed to be at another favorable buy spot right now,” Technical Analyst Clive Maund wrote on July 27, and said he was staying long, and he “regarded it as a very good point to add positions.”
“Red Cat’s current inventory of chips is big enough to build thousands of drones, and the company has the capacity to manufacture this many in a month,” Kumar wrote. “Now, with a developed and trained salesforce in place, Red Cat is continuing to build its sales pipeline.”
The company’s drone is “best-in-class,” he wrote, and it is getting positive responses from the military and first responders, its target market.
Red Cat “should benefit from new and repeat orders over calendar 2023,” he noted.
Technical Analyst Clive Maund said the stock “continues to have the prospect of winning some very big orders for its drones.”
“It is thought very likely that it will do so before much longer, and this being so, the stock is believed to be at another favorable buy spot right now,” he wrote on July 27.
Maund said he was staying long, and he “regarded it as a very good point to add positions.”
“It’s worth keeping in mind the strongly bullish implications of the big high-volume rally in the middle of June because it could very well make such a move again, which is a growing probability given the strong Accumulation line and the way that moving averages are swinging into positive alignment with a bullish moving average cross pending — so next time it makes such a move more of the gains are likely to stick,” Maund wrote.
High-End Thermal Imaging in Small Form Factor
The Teal 2 is equipped with Teledyne FLIR’s new Hadron 640R sensor, providing end-users with the highest resolution thermal imaging in a small form factor. Other technology partners in the Teal 2 project include Athena AI, Reveal Technology, and Tomahawk Robotics.
It’s not just on the battlefield that the drones are shining. Red Cat has signed on to provide two drones to the Bureau of Land Management for resource management and fire control coordination roles. That authorization includes another prospective 14 purchases in the future.
Red Cat’s Skypersonic division uses the company’s drones to examine difficult or dangerous-to-reach infrastructure. It should benefit from the US$1 trillion U.S. Federal Infrastructure Bill passed in 2021 that will create demand for drone inspection services across many civil improvement projects, including roads, bridges, and towers.
The company may also benefit from the United States’ announcement of a US$300 million arms package for Ukraine, which includes air defense systems.
Ownership and Share Structure
According to Red Cat, 37.27% of the stock is held by management and insiders. Reuters notes that CEO Thompson owns 22.13%. CEO of Fat Shark RC Vision Systems Gregory Ralph French has 8.67%. COO Allan Thomas Evans has 2.41%. Director Nicholas Liuzza has 1.76%. CFO Joseph Hernon has 0.47%, and CEO of Teal Drones George Matus has 0.58%.
Institutional investors have 9.01%. The Vanguard Group Inc. has 2.3%. Pelion Venture Partners has 1.62%. BlackRock Institutional Trust has 0.61%, and Geode Capital Management LLC has 0.49%.
The rest is in retail.
Red Cat Holdings has a market cap of US$53.59 million, with 55.54 million shares outstanding, and trades in a 52-week range of US$2.65 and US$0.7676.
Important Disclosures:
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Red Cat Holdings Inc.
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