Intuitive Machines (LUNR) has recently caught the attention of investors, fueled by the bullish momentum in the space exploration sector. This surge is partly driven by the political climate, particularly with Elon Musk’s involvement in government initiatives, including his potential influence on future NASA contracts. As such, I have a cautiously bullish stance on LUNR, believing that smaller players, like Intuitive Machines, could emerge as long-term winners, especially as contracts are increasingly awarded to more agile, specialized companies in both space and defense sectors.
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The stock has soared over 400% this year, with significant price jumps in September and November following the award of key NASA contracts. These wins have helped build a strong backlog for the company, further fueling investor optimism.
In this article, I will dive deeper into the investment thesis behind Intuitive Machines, explore why the stock is on fire, and explain why the optimism surrounding it is well-founded.
A Brief Overview of Intuitive Machines
Before diving into the bullish thesis for Intuitive Machines, it’s important to provide some context. Intuitive Machines is a fast-growing space commercialization company focused on lunar exploration. The company offers a range of services, including lunar surface access, lunar orbit delivery, and communications at lunar distance. Its offerings span from lunar surface rover services to satellite delivery.
With its market cap below $2 billion, Intuitive Machines has seen significant growth in its top line this year. The company anticipates that 2024 revenue will range between $215 million and $235 million, representing a 2.6x to 3x increase compared to last year’s sales.
That said, there is a major challenge: Intuitive Machines has yet to achieve profitability, with negative margins so far. Analysts expect the company to reach profitability no earlier than 2026. In Q3, Intuitive Machines burned through nearly $18 million in cash from operations, but it still had about $90 million in cash and cash equivalents. Importantly, the company has no net debt and maintains a healthy liquidity position, with a quick ratio of 1.70, meaning it has more than enough liquid assets to cover its short-term liabilities.
Despite its promising growth prospects, market skepticism remains high, reflected in substantial short interest, with 32.5% of its float sold short. This suggests that investors are cautious about the company’s ability to turn a profit in the near term, despite its strong revenue growth and favorable liquidity position.
Why LUNR Stock Is On Fire
A significant portion of my optimism around LUNR stems from a series of recent events that have fueled its bullish momentum. Between 2022 and 2023, the company consistently disappointed investors by failing to secure new stand-alone NASA contracts. However, in September 2023, Intuitive Machines secured a Near Space Network contract with NASA. The contract has a five-year base period, with an additional five-year option, bringing the total potential value to $4.82 billion.
This contract is seen as a pivotal moment for Intuitive Machines, marking a major milestone in its leadership in space communications and navigation. The company expressed excitement about partnering with NASA as part of the TIMUS (Timely Lunar Exploration) campaign, which aims to expand the lunar economy. In addition, Intuitive Machines was awarded a $116.9 million contract in late August through NASA’s Commercial Lunar Payload Services (CLPS) initiative, making it the top performer.
Intuitive Machines Surges on Strong Q3 Earnings Report
Contributing to the bullish momentum, Intuitive Machines reported strong Q3 earnings in early November. The company posted revenues of $58.4 million, a significant increase from the same period last year, when revenues were just $12.7 million. More importantly, the company’s backlog reached a record $316.2 million, primarily driven by lunar surface delivery missions and the first task order under the recently acquired NASA contract. As a result, LUNR shares surged by about 50%, reaching an all-time high of $16.35 per share on November 29.
On the other hand, the downside, which was already expected, came in the form of a GAAP EPS loss of -0.82 cents, missing expectations by $0.71. This highlights the company’s ongoing challenges in achieving profitability and showcases the risks associated with its path forward.
LUNR Navigates Stock Dilution with Growth in Mind
A key point of skepticism surrounding the bullish thesis is the company’s recent move in early December, where Intuitive Machines took advantage of its stock price surge and market hype by issuing new shares. This announcement led to a pullback from the year’s highs, as the potential dilution likely fueled short-term bearish sentiment.
Intuitive Machines revealed that it plans to issue over 9.5 million shares at $10.50 per share in the public markets. When factoring in additional call options from the underwriter and a private placement, the total public offering will amount to about 11.7 million shares. Notably, prior to this announcement, the company’s float stood at 80.86 million shares, meaning the new offering represents a 14.5% dilution of the float.
From a business fundamentals perspective, while this dilution may dampen short-term bullish momentum, it’s a positive move for the company. The issuance will raise approximately $104.25 million in net proceeds, which is crucial for a company in its early growth stage, especially one that is still operating at a loss and burning cash on a quarterly basis. This capital infusion should help support long-term stability and growth.
Is LUNR a Good Buy?
At TipRanks, the Wall Street consensus for LUNR is a Strong Buy, based on 5 Buy recommendations. The average LUNR price target is $16.70, suggesting an upside potential of 30.4%.
Notably, Canaccord Genuity analyst Austin Moeller remains bullish on the stock but has lowered his price target to $17.50 from $19, primarily due to the impact of the equity offering and resulting dilution. This revised price target is based on a 5.2x revenue multiple applied to 2025 revenue estimates of $475 million.
Moeller also highlights that the capital raise significantly boosts the company’s cash reserves, which should be sufficient to fund operations for at least the next two years, assuming the current burn rate continues.
Key Takeaway
I rate Intuitive Machines stock as a Moderate Buy, given the strong bullish momentum supported by the company’s promising position within the space exploration industry. With the recent NASA contract awards, the company has increasingly established itself as a potential influential player in this market.
However, Intuitive Machines is still in the early stages of growth and will likely need substantial funding to offset bottom-line losses in the coming years. As such, this is a high-risk investment that investors should approach with caution. The high short interest, driven largely by the uncertainty surrounding the emerging space industry, adds to the stock’s near-term volatility.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
