Red Cat Holdings Inc. (RCAT:NASDAQ) announced its new product line, unmanned surface vessels (USVs), in partnership with Palantir Technologies Inc. (PLTR:NASDAQ), a company with extensive experience in the space, reported Michael Latimore, Northland Capital Markets analyst, in a May 15 research note.
"USVs are basically drones on the water and can provide surveillance and strike capacity for maritime groups, just as aerial drones can do for land-based warfighters," Latimore explained.
95% Upside Potential
On the news, Northland Capital reiterated its $13 per share price target on the drone tech company, currently trading at about $6.65 per share, noted Latimore. The target implies a potential return of 95%.
Red Cat remains rated Outperform.
Partnering on USVs
Red Cat will be responsible for the USVs' physical elements, such as the hull, mold, jet propulsion, plugs and metallic radar reflective coating and will build the vessels, in the U.S. The company will mount Black Widows on them and potentially third-party weapons as well. Red Cat expects to start producing these sea-based drones in Q3/25. Palantir likely will provide the software, artificial intelligence and system intelligence for them.
What's more, Latimore noted, "We believe the partners bid on a large project, which could be in the $100 million-plus ($100M-plus) range."
Guidance Reiterated
Red Cat's reiterated 2025 revenue guidance is $80–120M, reported the analyst. Of this, the company expects $25–65M to come from the SRR program, $25M from non-SRR Black Widow, $25M from Edge 130 and $5M from FANG.
Red Cat's Q1/25 revenue was $1.6M, below Northland Capital's $2M estimate, noted Latimore. Adjusted EBITDA was ($10.3M), also missing Northland's forecast, of ($8.4M). Red Cat ended Q1/25 with $7.7M in cash (and since, raised $30M).
"Q1/25 results were slightly light but a small portion of year guidance," Latimore wrote.
The analyst reported that Red Cat is confident in its guidance for several reasons. They are indicators of a shift toward small, autonomous drones, the company's non-SRR customers (including border patrol, first responders, Air Force, Australia and Canada) and the anticipated LRIP (low rate initial production) contract Red CAT expects to receive any day now. It got the LRIP service contract, related to packaging and shipping, that usually immediately precedes the larger production contract. The company's backlog is valued now at $10M.
The low end of revenue guidance assumes Red Cat recognizes $25M, largely from the LRIP contract, whereas the upper end assumes production is underway at maximum capacity in Q4/25.
The drone tech company is doubling manufacturing capacity for Black Widow, to 1,000 per month eventually, which would generate $200M-plus per year. Also, it is moving Edge 130 production to a larger site where yield of 150 per month is possible; this would generate $80M-plus annually.
Catalyst-Rich 2025
According to Latimore, Red Cat has "myriad potential catalysts." The key ones are the final LRIP production contract, a USV contract, a full rate production contract, more funds for drones in 2025, finalization of Palantir software sales and EBITDA positivity.
More Stock Details
Latimore reported that Red Cat has 90.5 million shares outstanding and 79.7% float. It has a market cap of $602M and a 52-week range of $0.80–15.27 per share.
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