Intuitive Machines Inc. (LUNR)
“Good News Everyone!” $LUNR Might Be a Real-Life Planet Express.
In our Ledger Island Spotlights, we look at companies that could be a good fit in your portfolio or worth a closer look down the road. Some of them you have heard of. Some might be new finds. Either way, you’ll always get two retail investors’ perspectives from Clint & Phil. While they don’t always agree, they work to come to a middle-ground consensus on what to do moving forward and update guidance as we continue to track the stock on the Ledger Island Watchlists. Today, we’ll be looking at Intuitive Machines Inc. $LUNR.
Intuitive Machines Inc. is a SMALL-CAP company founded in 2013 and began public trading on the Nasdaq in February 2023. In their own words from Intuitive Machine’s investor relations page:
“Intuitive Machines is a diversified space company focused on space exploration. We supply space products and services to support sustained robotic and human exploration to the Moon, Mars, and beyond. We believe our products and services offered through four distinct business units: Lunar Access Services, Orbital Services, Lunar Data Services, and Space Products and Infrastructure, will open access to the Moon for the progress of humanity.” https://investors.intuitivemachines.com/
Clint's Take:
At 6:24 pm EST on February 22, 2024, the United States returned to the moon for the first time in 50 years. Unlike the first moon landing (July 20, 1969), this was not a NASA manned mission. It was a group effort by the emerging corporate sector of space commercialization between Elon Musk's Space X (for launch) and Intuitive Machines LUNR 0.00%↑ on contract to touchdown on the moon with scientific equipment for NASA. What was once a "small step for man" has become a "giant leap" for investors.
Interestingly enough, LUNR's IM-1 Lunar Lander named Odysseus (nicknamed Odie) launched on February 15, 2024, just two days past the year anniversary of the once SPAC (Special Purpose Acquisition Companies) public trading date. In that year, LUNR 0.00%↑ came out the gate quickly, setting its 52-week high of $38.98 before reentry (couldn't resist) to a more grounded (sorry) $2-3 range. The news coverage of the launch has seen some volatility and short selling, driving LUNR to $12.05 in today's (02/23/24) pre-market, but it quickly dissipated after the opening.
Inside the numbers, LUNR 0.00%↑ isn't an all-hype company. There is a path forward for profitability and ROI (Return on Investment) for investors. Operating cost (up 57.34% YoY) and cash on hand (down 12.04% at 25.76M) trends are expected from a company launching objects to operate off-world. The 18.46% increase in revenue and the two consecutive quarters of increased net income (Q2FY23 $18.78M and Q3FY23 $15.10M) is what intrigued me. With NASA's commitment to staying under contract for future missions (IM-2 and IM-3 already slated), this "U-Haul in space" business model may have a serious upside in the near and long term. See the link below for more details on NASA's CLPS (Commercial Lunar Payload Services).
https://www.nasa.gov/commercial-lunar-payload-services/
My two biggest concerns are volatility and lack of customers. The volatility has the potential of being a wild ride based on news alone. While not uncommon for most companies, add a "catastrophe" factor (similar to the airlines with safety or other incidents). A fledging company like this might not have a survivability moat like a Boening BA 0.00%↑ .
As to the customer base, who else is out there outside of NASA? There is a renewed Space Race of sorts. China, Russia, India, and Japan have all landed on the moon in the past four years alone. Is there an expectation that other countries could contract LUNR 0.00%↑ in this geopolitical climate? Unlikely. There is the outside chance that scientific organizations or universities could be potential clientele, but how many aren’t already embedded with NASA? At the moment, NASA seems to be the only game in town, but with big plans for future manned missions (Artemis to launch in 2025), LUNR may have enough to keep rocketing (the last one, I promise) upward.
Phil's Take:
Yep, the guy who is skeptical about eVTOLs and autonomous vehicles is spotlighting a space company. But there is good money building things and firing them into space, plus the LUNR ticker is just phenomenal branding, so they deserve a closer look based on that alone.
Jokes aside, there is a lot to like about the company profile. They just completed a new Lunar Production and Operations Center at the Houston Spaceport. They received a significant portion (87%) of NASA's five-year $719 million OMES III contract, and they shipped their Nova-C vehicle on time.
I have three main concerns going forward:
The potential revenue pool in the future is highly uncertain. I am still looking for a convincing projection of what the future market for LUNR 0.00%↑ services is going to be. So far, their revenue is driven by government contracts. While NASA's budget has increased over the last decade, it has been a frequent target for members of Congress looking to make cuts. The US government will always be spending money on space; it's a source of national pride, but the size of that spending will be necessary in an increasingly crowded market.
I need a reliable way to gauge the likelihood of LUNR 0.00%↑ winning a government contract they bid on. I'm not a rocket surgeon. LUNR said in their Q3 report that there are $3+ billion in upcoming award decisions for which they have submitted proposals. It is unclear what percentage of those contracts LUNR could reasonably expect to receive.
LUNR has a significant contracted backlog. In their reports, LUNR 0.00%↑ refers to their contracted backlog as "our total estimate of the revenue we expect to realize in the future as a result of performing work on awarded contracts, less the amount of revenue we have previously recognized. We monitor our backlog because we believe it is a forward-looking indicator of sales, which can be helpful to investors, evaluate the performance of our business, and identify trends over time." That approach is not problematic as a business model since they appear to have plenty of cash on hand. They had $40.7m at the end of Q3 compared to an operating cost of $7.2m for the same quarter. But when stocks are judged on their earnings, having that significant backlog is a potential source of volatility in both directions.
LUNR 0.00%↑ is a risky stock; there is no doubt about it. Launching expensive things into space on the back of a multimillion rocket will always be inherently risky, and the Dow will be much less forgiving to a private company than Americans were to NASA when things went wrong. Their price could take off (do I get bonus points for making it this far without using that joke?) based on a successful launch and then crater after an unsuccessful one. The exact process could be repeated for successful or unsuccessful bids for government contracts. That being said, they are in a strong position. They have proven that they can secure complex and long-term NASA contracts. They have also proven they can secure contracts from other agencies, including the Air Force and the Department of Energy. Plus, I'm confident that humanity will continue to launch more and more technology into space.
Moving Forward: (Updated Below)
The commercialization of space is an exciting investment sector and is likely to become more prominent soon. Years of speculation (i.e., widespread commercial space flights and future mining operations) should be distinct from years of profitability, of which there has been very little in the public sector. Still, the groundwork is definitely there and ready for future growth. In the case of LUNR, we are placing it in the "Checking My Math" watchlist. We feel it has enough of a foothold and outlook to keep it ahead of the pack. We fear this current positive news cycle will drive the price to highs we don't believe LUNR 0.00%↑ can sustain long-term. We think $10.80 seems fair and will offer some insulation on the value in the future.
What’s New: 02/26/24
It is being reported that the Intuitive Machines Inc. LUNR 0.00%↑ IM-1 Lunar Lander named Odysseus (nicknamed Odie) has “tipped” over and is on its side. Of the seven NASA science and technologies payloads recording and communicating data only one is not positioned or receptive to communications. For more details see the link below.
Moving Forward:
As we said in the original profile, the volatility of LUNR 0.00%↑ is going to be closely tied to the news and perception. While landing on the moon is certainly no small task, the scrutiny of what constitutes “success” can cause shockwaves in the stock’s price. While the reporting indicates it has tipped over, we would not be surprised if amended reports indicate it actually landed on its side. *Clint had made note while watching the live stream of LUNR’s command center during the landing that it had almost sounded as if it was on its side immediately. Should any other part of the data gathering the IM-1 was on mission for becomes either damaged or unable to be received we think most investors may stop believing and cause a sell off. The actual photo transmitted back and the time it took to receive this image are not helpful factors either.
For those reasons we are DOWNGRADING Intuitive Machines to “Prove it to Me” until some better information and its effect on the stock price can be obtained. Already down -24% in the pre-market, opening at $7.67 today (02/26/24) from a $9.57 close the previous Friday definitely feels like the right time to wait and see for us. Since LUNR does have many aspects, we like long-term we will reassess when the dust settles.
*Note: As of 11:09 am on this Monday (02/26/24) it is estimated that the due to the sideways position of the IM-1 lander it will not be able to complete its full mission with the solar panels unable to recharge and will terminate NASA’s scientific data gathering Tuesday morning (02/27/24) approx. (3) days short of its original mission. For more details read:
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