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Drone Tech Consortium to Foster Cooperation Among Cos.

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Drone technology company Red Cat Holdings Inc. announced the formation of an independent, industry-wide consortium designed to put the most advanced uncrewed aircraft systems into the hands of warfighters. Read why one analyst thinks the stock could "net huge gains."

Drone technology company Red Cat Holdings Inc. (RCAT:NASDAQ) announced it has formed an independent, industry-wide consortium of robotics and autonomous systems (RAS) partners to put the most advanced and interoperable uncrewed aircraft systems into the hands of warfighters.

Anchored by Red Cat's Teal drones, the RFI unites the world’s most innovative UAS (unmanned aerial systems) hardware and software companies focused on AI/machine learning, swarming, first-person view (FPV), command and control, and payloads, the company said.

Founding members include Ocean Power Technologies (NYSE: OPTT), Sentien Robotics, Primordial Labs, Athena AI, Unusual Machines, Reach Power, and MMS Products. The shared goal is advocacy, integrations, and co-marketing, which bridges considerable technology gaps through modular open architecture.

"One of many Teal Drone advantages is the modular design that allows for effortless swapping of propulsion, payload, and other hardware based on the specific needs of warfighters," said Jason Gunter, Red Cat director of Special Programs. "Additionally, with Teal as a hub, we’ve already built a robust ecosystem of partners that specialize in AI and computer vision applications, 3D mapping, target acquisition, swarming, and other sUAS decision support features. The RFI formalizes this but is also a launchpad for co-marketing, tech collaboration, and grassroots advocacy."

Red Cat President and Chief Executive Officer Jeff Thompson noted that the needs of warfighters, such as those using drones extensively in Ukraine, have shifted dramatically in recent years.

"The key to bridge technology gaps and accelerate maturation is co-innovation amongst hardware and software companies that span the entire value chain," he said. "The RFI will spearhead this mission and be a central place to showcase new capabilities and industry voices."

Systems Needed for Air, Land, Sea

Red Cat said it developed the consortium to support the Pentagon’s desire to accelerate innovation for its Replicator initiative and the need for "attritable" autonomous systems across air, land, and sea, including the U.S. Army’s Short-Range Reconnaissance (SRR) Program.

The consortium will collaborate to ensure requirements-based UAS production that meets the needs of specific missions, as well as to reduce vendor lock-in and promote interoperability. The RFI will also focus on R&D and government advocacy that accelerates technology maturation, the company said.

"The reason for the strong gains in Red Cat stock this month is that the latest . . .  massive cash infusion for Israel and Ukraine, etc., has, of course, been passed by the House with some of this being earmarked for the purchase of drones for use by the military," wrote Technical Analyst Clive Maund on April 25.

The U.S. Army has already selected Red Cat as a finalist for the SRR program, for which the company is developing a small, unmanned aircraft system (SUAS) prototype for delivery in May 2024.

The winner, to be announced by September 2024, will be awarded a contract for the delivery of about 12,000 drones.

Red Cat's Teal 2 drone was developed to "Dominate the Night." It is outfitted with ultra-high-resolution thermal imaging and is modular, rugged, secure, and easy to fly.

Military, public safety, and government entities use the Teal 2 for intelligence, surveillance, and reconnaissance.

"The war in Ukraine has demonstrated the real-world need for low-cost, U.S.-made drones that can be deployed rapidly at scale and withstand enemy jamming attempts," said Amol Parikh, co-chief executive officer of Doodle Labs, which is working with Red Cat on solutions to thwart jamming of drone control signals.

Aid Announcements Push Stock

The U.S. recently passed a military aid package to Ukraine worth US$60 billion and revealed a US$6 billion long-term military aid package for the war-torn country that will allow the U.S. to purchase new equipment produced by the American defense industry for the Ukrainian military.

The news pushed RCAT's stock up last month from US$0.95 per share on April 15 to a high of US$1.65 on April 30, with the company seeing its highest trading volumes so far this year.

"The reason for the strong gains in Red Cat stock this month is that the latest . . .  massive cash infusion for Israel and Ukraine, etc., has, of course, been passed by the House with some of this being earmarked for the purchase of drones for use by the military," wrote Technical Analyst Clive Maund on April 25.

If Red Cat prevails in getting the Army SRR contract, "We can expect the stock to spike in the same manner that it has in the past," Maund noted.

The Catalyst: Worldwide Needs Pushing Demand

A February report from Markets and Markets predicts that the military drone market will grow from US$13 billion in 2023 to US$18.2 billion by 2028, a compound annual growth rate (CAGR) of 7%.

Military drones "play a crucial role in strategic and combat zone reconnaissance, intervening on the front lines by designating targets for precision-guided munitions or directly deploying those munitions themselves," the firm's analysts wrote. "Major military powers and even some militia groups employ battlefield surveillance UAVs to extend the observation capabilities of ground and naval forces, enhancing the reach and accuracy of supporting fire."

The Ukrainian government recently announced that it is increasing its spending on drones by an additional US$392 million, or 15.5 billion hryvnia, the national currency of Ukraine.

"With the funds allocated today, 300,000 drones will be delivered to our security and defense forces," Prime Minister Denys Shmyhal said at a Cabinet meeting in Kiev, according to a report by DPA International. Ukraine had previously budgeted 43.3 billion hryvnia.

Company is on a 'Growth Trajectory'

Maund started following the company last June. He noted in April that the stock was "a very attractive speculative play here that could net huge gains in a short space of time."

The company posted its best quarter in Q3 fiscal year 2024 (FY24), which ended January 31, exceeding guidance by 16% and generating record revenue.

"Red Cat is on a growth trajectory," Dr. Ashok Kumar, an analyst at ThinkEquity, wrote in a research report. Kumar has assigned a Buy rating and a US$5 per share target price to the stock.

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Red Cat Holdings Inc. (RCAT:NASDAQ)

*Share Structure as of 12/27/2023

"We forecast total revenues to grow from US$9.9 million in fiscal 2023 to US$35.0 million in fiscal 2025. Over the same period, we expect operating income to improve from US$27 million to US$9 million," Kumar wrote. 

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 16.5%, CEO of Fat Shark RC Vision Systems Gregory Ralph French has 6.48%, COO Allan Thomas Evans has 1.81%, and Director Nicholas Liuzza has 1.31%.

Institutional investors have 9.01%. The Vanguard Group Inc. has 1.75%, and Pelion Venture Partners has 1.21%, Reuters reported.

The rest is in retail. 

The company's market cap is US$81.42 million, and its 52-week trading range is US$53−1.65 per share.

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Important Disclosures:

  1. 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.
  2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
  3.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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