Why Archer Aviation Skyrocketed 24.6% Last Month
Key Points
Archer is acquiring Boeing's Wisk Aero, SkyGrid, and Insitu subsidiaries.
Boeing will receive a 16.75% state in Archer in exchange for the units.
The deal is heavily dilutive for shareholders, but it could be a great thing for Archer over the long term.
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Archer Aviation (NYSE: ACHR) stock had a big month in August. The company's share price gained 24.6% across the stretch, according to data from S&P Global Market Intelligence. The S&P 500 gained 2.6% in the month, and the Nasdaq Composite rose 3.9%.
In addition to the bullish backdrop for the broader market, Acher's valuation got a big boost following news that the company had entered into a deal to purchase three subsidiaries from Boeing. Despite the big pop, Archer stock is still down roughly 24% year to date.
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Archer stock surged on Boeing deal news
On Aug. 10, Archer Aviation published a press release announcing that it had entered into an agreement to purchase Boeing's Wisk Aero, SkyGrid, and Insitu subsidiaries.
- Wisk is a longtime player in the eVTOL space and has logged more than 1,700 test flights.
- SkyGrid provides air-traffic management solutions and develops autonomous flight technologies.
- Insitu is a designer and manufacturer of drones and also provides related software and services.
In exchange for these three businesses, Boeing will receive a large stake in Archer. The deal will be facilitated with the creation of newly created stock, and Boeing will own a 16.5% stake in Archer following the completion of the transaction.
Notably, the press release states that Insitu is already profitable and generating roughly $200 million in annual sales -- so the integration of the unit should immediately have a big impact on Archer's sales profile and an accretive impact on margins.
What's next for Archer?
Archer stock has seen a modest pullback early in September's trading. The company's share price is down roughly 1.2% in the month amid some volatility for the broader market connected to concerns about inflation and the bond market.
With Archer using newly issued shares to fund its acquisitions from Boeing, investors are looking at a high level of stock dilution on the horizon. On the other hand, the deal still appears to be a promising development for long-term Archer shareholders. Boeing is a great partner to have in the aerospace and defense industry, and the deal creates opportunities along multiple lines.
Along with providing Archer with three new units that create sales and earnings opportunities, Wisk, SkyGrid, and Insitu will likely have meaningful synergies with the company's eVTOL and VTOL projects and autonomous aviation capabilities. The acquired businesses will also likely provide valuable data for the company's AI-powered ZEE foundation model for aviation, autonomous navigation, and related applications.
Archer is a volatile stock and could face outsized pressures if the market becomes more risk-averse in response to macroeconomic pressures, but the deal with Boeing has seemingly made the company stronger and given it more ways to grow.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing. The Motley Fool has a disclosure policy.
