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NASDAQ:HOVR
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We are initiating coverage of New Horizon Aircraft Ltd (NASDAQ:HOVR) with a 12-month valuation target of $1.25 per share. New Horizon is an early-stage aircraft OEM that is still developing its first commercial aircraft, the Cavorite X7.
The Cavorite X7 will be a 7-seat vehicle (6 passengers and one pilot) that will be capable of vertical takeoffs and landings like a helicopter, but once airborne, the aircraft will fly the majority of its miles as a traditional fixed-wing aircraft with a propeller powered by aviation fuel. Based on initial testing and modeling conducted by the company, it is expected to have the capacity to travel at a speed of up to 250 miles per hour with a range of over 500 miles.
The company expects to target the regional air mobility market with the Cavorite X7 and anticipates that demand will come from emergency service providers (medical and disaster response), intercity travelers, and the military.
Key reasons to own Horizon Aircraft shares:
➢ The Cavorite X7 is a unique approach to solving the problem of regional air mobility by offering a hybrid approach that utilizes electricity to power vertical takeoff and landing while using existing technologies (conventional fuel and fixed-wing design) to achieve horizontal flight. By combining these approaches, it is expected that the Cavorite X7 will offer the ability to travel further and faster than existing options in the vertical takeoff world (principally helicopters). Also, by utilizing traditional fuel and a propeller, the Cavorite X7 will significantly exceed the range capacity of nearly all proposed eVTOLs we've reviewed while expanding the landing possibilities of fixed-wing aircraft to more remote locations not currently served by regional airports.
➢ We believe the team at Horizon Air has carefully analyzed the market to build a product that will find demand in the market. Rather than building a product for a potential market that has yet to develop (like the "air taxis" envisioned by many eVTOL players), Horizon's team is building a product to address the greatest weakness of helicopters and small aircraft markets. While any new aircraft design will inherently face challenges, building an aircraft with a clear end-market in mind is a sensible approach.
➢ We believe that the company's current valuation accurately reflects the substantial risks of bringing a new aircraft to the market. As the company achieves certain milestones on its path toward certification of the Cavorite X7, investors should reevaluate that risk discount. We think the valuation should improve if the company stays on track to commercialization by 2030. On balance, we believe the risk-reward is attractive at the current levels for investors willing to speculate on a high-risk venture.