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In October 2023, I initiated coverage for Bridger Aerospace Group Holdings, Inc. (NASDAQ:BAER). For investors that are willing to take a risk or have a portfolio with names that can either go to the moon or doom, I marked shares a hold while its fundamentals would indicate a sell rating. Since then, the stock has tanked 22.7% while the markets gained around 15%. It fits the very speculative and risky nature of an investment in Bridger Aerospace. In this report, I will be discussing why BAER stock tanked, and I will be discussing the most recent results, which actually looked quite good.
Why Did Bridger Aerospace Stock Tank?
When I initiated coverage for Bridger Aerospace, the stock price was $7.44 and just two weeks later shares hit a bottom of $4 per share. In between, on the 17th of October, Bridger Aerospace announced a $70 million public offering, which would obviously dilute shareholders. At a price of $6.50 prior to the announcement, shareholders would see their ownership being diluted by around 20%, which would indicate a $5.20 price per share as a likely drawdown. However, days after the announcement, the situation in the Middle East put pressure on the financial markets and shares plummeted to $4 per share. Raising cash from shareholders at that price point would indicate a dilution of around 28%. Following the market volatility, Bridger Aerospace terminated its proposed offering of shares.
In response, the stock price rose 27.7% to $5.19 and is now trading at $5.86, which is well below the stock price prior to the announcement. Perhaps a full recovery that is not fundamentally driven might also not happen, as investors might be fearing an announcement of a new public offering in the future.
Bridger Aerospace Earnings Looked Strong In Q3 2023
While investors were initially slammed by a negative announcement of the public offering, more positive were the Bridger Aerospace Q3 2023 earnings. The company saw its revenues increase by 65% to $53.6 million, driven by a growing fleet as well as better utilization. Gross income nearly doubled on favorable cost of revenues, as maintenance costs remained more or less flat and cost of flight operations paced slower than that of revenue growth. Selling, general and administrative expenses declined from $18.1 million to $15.8 million, driven by lower offering costs and bonuses.
Adjusted EBITDA grew from $19.1 million in Q2 2022 to $38.7 million in Q3 2023. So, results were actually good, as they showed that the business is in fact scalable, the services from Bridger Aerospace without doubt are in demand, and we saw the impact of utilization increases.
Bridger Aerospace Issues Initial 2024 Guidance
For the fourth quarter of 2023, Bridger Aerospace expects its revenues to be lower due to seasonality, and the company will be loss-making again with a $10 million to $11 million projected adjusted EBITDA loss. For 2024, the company expects 3% to 30% growth in revenues to $70 million to $86 million, which admittedly is quite a wide projection range. Adjusted EBITDA is expected to grow to $35 million to $51 million. The reason for the wide range is the assumption on the length of the fire season. The higher bound of the range provides a normal fire season, while the lower bound represents projections into 2024 based on the fire season length of 2023, which was an unusually short one.
What Are The Risks For Bridger Aerospace and Shareholders?
I think one clear risk pertains to the ownership structure of Bridger Aerospace. In my previous report, I already discussed the risks of dilution for Bridger Aerospace common stockholders upon conversion of the preferred stock and exercising warrants. The additional driver of possible dilution is public share offerings to raise additional cash to finance growth. I believe that the announcement of the public share offering shows that Bridger Aerospace is prepared to grow at the expense of shareholders. The good thing, however, is that the termination of the same announcement also showed that Bridger Aerospace is not willing to do that at any dilution percentage.
The other risks for Bridger Aerospace are related to its business and its market. Bridger Aerospace provides aerial firefighting services, and that means that its business hinges on the need for fire fighting services. In the longer term, with global warming in mind it can be expected that fire fighting services will be higher in demand, and that is also because there is a growing number of houses built in urban-wildland. A growing number of the population in urban-wildland also means that the potential damages in monetary terms but also risk to human life is higher. So, the demand driver is not expected to go anywhere soon. There is an increased risk to human life and property and that threat, namely wildfires, is not going anywhere soon.
The risk, however, is the length of the wildfire season. A reduction in the length of the wildfire season will have an impact on earnings, the projections for 2024 show that quite well as revenues at the low end are only 80% of a normal fire season. Keep in mind that the low-end scenario is driven by the 2023 fire season length, which was shorter than normal. Furthermore, seasonality also plays a role. One of the main areas I cover is airlines, and we see results being the strongest in Q2 and Q3 and Bridger Aerospace is seeing the same with most of its earnings concentrated in Q3. Obviously, air travel to a major extent is driven during summer by people looking for sunnier destinations, and sunnier days also increase the chance of wildfires, so seeing some similarity in the earnings profile of an aerial firefighting service provider and airlines is not that odd. The difference with airlines is that airlines have a December holiday season to rely on, as well as stronger business travel months. For Bridger Aerospace, it is more difficult to generate off-peak revenues, but its acquisition of Bighorn Airways, which is equipped to carry out specialized transports, can provide some padding in the off-season.
Another risk to Bridger Aerospace is an inability to scale its fire fighting fleet through acquisition of Super Scooper aircraft. The Super Scooper is produced at lower rate and an eventual risk would be the termination of production. That will reduce the stockfeed of second-hand airplanes that Bridger Aerospace is acquiring, and either drive up the price of second-hand airplanes or completely evaporate the supply of those firefighting airplanes.
I am, however, not too worried about that. During the wildfires in Greece in the summer of 2023, nearly half of Europe’s fleet was sent to Greece, and it increased awareness that increased firefighting capacity is required, driving demand for brand-new airplanes and the manufacturer of the Super Scoopers is working on a successor to the current Super Scooper, which could drive purchases higher and actually over time result in more supply and better pricing on second-hand Super Scoopers. While I do not view it as a major risk, it is still one worth mentioning.
Conclusion: Bridger Aerospace Remains A Risky Hold
I believe that Bridger Aerospace Group Holdings, Inc. has quite a clear business case, and I believe that for patient shareholders there is value creation ahead. However, there are risks to that value creation, as growth could be financed by raising capital from shareholders and financial results fluctuate significantly from quarter to quarter. They could also be driven by the length of a fire season in a given year, which also fluctuates significantly annually. I am maintaining my hold rating on Bridger Aerospace Group Holdings, Inc. stock, but believe that shareholders should continue to keep these risks in mind and observe how a growing fleet translates to the bottom line.
Bridger Aerospace (NASDAQ: BAER) is a relatively new player in the aerospace industry, having been founded in 2014. In just a few short years, the company has made a name for itself in the world of aerial firefighting, offering state-of-the-art technology and equipment to combat wildfires. While their mission is certainly commendable, many investors are wondering if their stock is a good investment choice. With the current state of the market and the company’s performance, is Bridger Aerospace’s stock doomed? In this article, we will examine the factors that may impact the performance of BAER on the NASDAQ and provide insights for investors considering this stock.
Introduction to Bridger Aerospace and its Mission
Before diving into the current state of BAER’s stock, let us take a closer look at the company itself. Founded by CEO Tim Sheehy, Bridger Aerospace provides aerial support services for wildfire management, search and rescue, and other critical missions. Their fleet includes various aerial firefighting planes, including the Guardian, a specially modified C-130 aircraft equipped with state-of-the-art technology for efficient and effective firefighting.
The company’s mission goes beyond providing services to its clients; it is also committed to supporting communities and is a proud sponsor of the Wildland Firefighter Foundation. With their focus on providing innovative solutions to combat wildfires, Bridger Aerospace has garnered a lot of attention in the industry and from investors. But is their stock a good investment choice? Let’s find out.
The Current State of BAER’s Stock
At the time of writing, Bridger Aerospace’s stock (NASDAQ: BAER) is trading at $2.34 per share. The stock has been on a downward trend in recent months, with a 52-week high of $5.40 and a 52-week low of $1.80. This may raise concerns among investors, but it is essential to understand the reasons behind this performance and their potential impact on the company’s future.
Factors Affecting BAER’s Stock Performance
1. The Pandemic’s Impact on the Aviation Industry
Like many other companies, Bridger Aerospace has been impacted by the ongoing COVID-19 pandemic. The aviation industry has been hit hard, with travel restrictions and reduced demand for air travel. This has resulted in a decline in air travel revenue, leading to delays and cancellations of aircraft orders. As a result, companies in the aerospace industry, including Bridger Aerospace, have been facing financial challenges, which have undoubtedly affected their stock performance.
2. Fluctuations in Wildfire Seasons
Bridger Aerospace’s primary focus is aerial firefighting services, which is heavily dependent on the wildfire seasons. In recent years, there have been changes in the wildfire patterns, with more frequent and intense seasons. While this may seem like an advantage for the company, it can also lead to fluctuations in their business. For instance, a slow wildfire season can result in decreased revenue and slower growth, impacting the stock’s performance.
3. Competition in the Industry
The aerial firefighting industry has several players, with established companies like Global Supertanker Services and AeroFlite dominating the market. Bridger Aerospace is relatively new compared to its competitors, which can make it challenging to compete for contracts and secure steady revenue streams. This can also have an impact on the company’s stock performance in the market.
What Investors Need to Know
Amidst the challenges facing Bridger Aerospace, there are also some factors that may make their stock a potential investment opportunity. Here are a few things investors should keep in mind when considering BAER:
1. The Potential for Growth
With the increasing frequency and intensity of wildfires globally, there is a growing demand for efficient and effective aerial firefighting services. This presents a significant opportunity for Bridger Aerospace to expand its operations and establish itself as a leader in the industry. If the company can secure more contracts and continue to innovate, it could see a significant growth in revenue and performance, potentially boosting its stock price.
2. Government Support and Contracts
Bridger Aerospace has already secured contracts with government agencies, such as the U.S. Forest Service, for its firefighting services. These contracts provide a stable revenue stream for the company and can help mitigate the impact of fluctuations in wildfire seasons. Additionally, with governments worldwide increasing their focus on combating wildfires, Bridger Aerospace could stand to benefit from more opportunities for contracts and partnerships, providing stability and growth potential for the company and its stock.
3. Diversification of Services
To mitigate the impact of seasonal fluctuations and diversify its revenue streams, Bridger Aerospace has also expanded its services beyond aerial firefighting. The company now offers search and rescue and other critical mission support, providing a more stable income source. This diversification may help the company’s stock performance in the long run and make it less vulnerable to challenges faced by the firefighting industry.
In conclusion, while Bridger Aerospace’s stock (NASDAQ: BAER) may have had a turbulent performance in recent months, there are positive factors that investors should consider. The potential for growth, government support, and diversification of services are crucial factors that may impact the stock’s performance in the future. However, as with any investment, it is essential for investors to conduct thorough research and carefully weigh the risks and potential rewards before making a decision.
On a final note, the current state of the market and the industry may present a buy-low opportunity for investors looking to add a promising company to their portfolio. With its innovative technology, strong mission, and potential for growth, Bridger Aerospace may just be the stock to watch in the coming months and years.