Luminar Technologies (“LAZR”) – The Investor Weekly Stock Report

Summary

Luminar Technologies’ stock has been on a downtrend for the last six months. The downward pressure on price is in stark contrast to the good news coming from the Company’s commercial programs.

Luminar continues to make progress on production, logistics, and supply chain management. Strong competition characterizes the LiDAR market. Furthermore, it has been hard hit by the semiconductor industry. Current valuation, despite the price remaining well below the 250- and 50-day moving averages, is still high. For instance, valuation is especially high when comparing Price / Sales. It may make more sense to look at Price / Book multiple, instead.

Looking at Price / Book, we could easily see a $23 to $25 per share value warranted.

The risk-to-reward prospects are looking better following the YTD selloff. Automakers are pivoting at a faster than expected pact to EVs, and self-driving technology. In return, it is increasingly viewed as a default feature in premium EVs.

We are bullish on Luminar and recommend a long-term hold over the next three to five years. Overall, the Company provides upside due to its existing commercial projects, order book and cash position.

Return vs S&P YTD

Financial Overview: September 2021

Market Cap: $6.14 billion
Total Debt: $13.76 million
Cash: $580.44 million
EV: $5.62 billion

Stock Price Decline: Down Roughly 40% YTD – Why?

1. Investors have been rotating away from high-growth, futuristic stocks, into cyclical stocks to play the post-Covid reopening.

2. A number of LiDAR stocks went public this year, including Ouster and Innoviz. And this had an adverse effect on the demand for LAZR stock. The Company, has historically, been one of the few available for investors looking to play the self-driving market.

Company Overview

Luminar Technologies, Inc. operates as a vehicle sensor and software company for passenger cars and commercial trucks. The company operates in two segments, Autonomy Solutions and Other Component Sales. The Autonomy Solutions segment designs, manufactures, and sells lidar sensors, and related perception and autonomy software solutions for original equipment manufacturers in the automobile, commercial vehicle, robo-taxi, and other related industries. The Other Component Sales segment engages in the designing, testing, and consulting of non-standard integrated circuits for government agencies and defense contractors.

The company was founded in 2012 and is headquartered in Orlando, Florida. Luminar was founded in 2012 by CEO Austin Russell. The Company is well respected in the automotive technology industry and has been credited with creating the only LiDAR sensor that meets the demoing performance, safety, and cost requirements to enable Level 3 through Level 5 autonomous vehicles in production. LAZR integrates its advanced hardware with custom developed software to enable a turn-key autonomous solution to accelerate widespread adoption at production scale.

LAZR announced the acquisition of its exclusive chip design partner and manufacturer, OptoGration, in June 2021.

Growing Production Capabilities

This acquisition was an important milestone for the company, as it needs to secure its supply chain. OptoGration designs and manufactures crucial InGaAs photodetector chips that go into Luminar’s sensors. OptoGration has capacity to produce approximately one million InGaAs chips with Luminar’s design each year at their specialized fabrication facility in Wilmington, Massachusetts, with the opportunity to expand to up to ten million units per year capacity.

The Company is making progress with its commercialization plans. Luminar began producing LiDAR sensors at a contract manufacturing facility in Monterrey, Mexico, with mass production likely by the end of 2022. LAZR is working with manufacturing partners Celestica and Fabrinet on the project. Celestica is responsible for product-level assembly and fulfillment, while Fabrinet assembles some of the core optical components. They’ll both continue to accelerate in order to ensure that some end-of-year targets are reached for C-Samples (Close-to-series sample). This is the ultimate step before serial production.

As a company which has developed a new product, Luminar has already produced the first function sample (A-sample) and the test sample (B-Sample). Now, the key focus remains on supply chain and manufacturing execution on the path to series production.

LAZR is looking to transition from being just a LiDAR vendor into a full-stack autonomous vehicle player. This is evident in the Company’s relationship with Volvo. Its Sentinel autonomous system developed in collaboration with Volvo’s subsidiary, Zenseact, will integrate Luminar’s perception software, its Iris lidar, and related components with Zenseact’s autonomous driving software. After that, the full-stack system should be significantly more lucrative for the Company, given the higher software-related value add.

Luminar’s Sentinel Solution

Luminar’s full-stack, hardware and software Sentinel solution will enable Proactive Safety and Highway Autonomy for series production.

Leadership
Austin Russell, CEO.

Ownership Structure

Luminar Technologies insiders own 32% of the company, currently worth about US$1.9b based on the recent share price. Moreover, this kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.

Market Overview

Many cars today use a variety of cameras, ultrasonic sensors and radar to enable features like adaptive cruise control, parking assistance, automatic emergency braking, and blind spot monitoring.  The technologies, however, are limited in terms of both range and depth. However, new technology continues to be developed that will allow for autonomous driving.

LiDAR stands for “Light Detection and Ranging” and describes a sensor technology that can create a map of the environment around it. LiDAR is an important technology for autonomous vehicles. It provides a three-dimensional view of the car’s external environment. LiDAR, essentially, allows vehicles to be aware of their surroundings. An image of the Luminar LiDAR chip is below – note how incredibly small it is.

In early self-driving vehicles, the LiDAR system could easily be spotted in the form of a spinning cylindrical item on the car. The maps created by these devices are critical for self-driving features. Beyond the automotive space, LiDAR is used on mobile devices, where range isn’t so much of a concern, allowing for features like augmented reality, measuring distances, and blurring backgrounds in photos and videos.

LiDAR remains an expensive technology. The module developed by Luminar costs roughly $1,000 per vehicle.

Strategic Partnerships

Luminar has production partnerships with OEMs including Volvo, Daimler Trucks, and China’s largest auto company, SAI. LAZR also has a commercial program with Airbus, as of April 2021, which is currently utilizing laser-guided mapping and perception technology on its airplanes. The Company holds more than a dozen additional opportunities at this time, as per their most recent investor conference.

Other competitors in the LiDAR space include Waymo, a subsidiary of Alphabet Inc. There is also Valeo, the LiDAR supplier for Audi’s A7 and A8 models, as well as startups owned by Ford and General Motors. Note that Tesla utilizes Radar and not LiDAR. Radar remains a more affordable alternative to LiDAR, at $50 per millimeter-wave sensor module. Tesla integrates the module into learning software that pairs the radar with video to map the automobile’s surroundings.

The automotive LiDAR market is expected to grow 30.4% between 2019 and 2027.

Luminar Technologies’ Competitors

Peers in the Consumer Discretionary / Auto Parts and Equipment Industry include: Fox Factory Holdings (“FOXF”), Valeo (“VLEEY”), Autoliv (“ALV”), Gentex (“GNTX”), and Veoneer (“VNE”). Fox has far and away outperformed the peers in this space. Fox’s YTD return is 35% and it’s 1-Year return is 94%. Over the last five years the company has returned 598%. WOW.

Other LiDAR plays include: Aeva (“AEVA”), Innoviz (“INVZ”), and Ouster (OUST”). AEye (“LIDR”) recently went public through a reverse merger with CF Finance Acquisition Corp. III.

Other Stocks to Consider – if you feel you are late to the game…
Embark Trucks – do some digging on this one. Embark Trucks will join a growing list of self-driving car stocks, which include Plus and TuSimple Holdings. These companies are looking to raise large sums of money to build out their technologies.

Financials

On August 12, 2021 the Company announced second quarter results. At this time, LAZR increased full-year guidance for major commercial wins, revenue and forward-looking order book growth. Revenue guidance rose to $30 to $33 million (previously $25 to $30 million). Total Cash Spend for Q2 was $32 million, making H1 2021 spend equivalent to $61 million. The Company expects Total Cash Spend for the year to be equal to ~$140 million.

5 Key Milestones for Luminar

As per the earnings release, the Company continues to focus on five key milestones for 2021E:

1. Iris Industrialization for Series Production
Luminar now controls over 85% of its Iris supply chain. The Company expects to enter the C phase in the fourth quarter of the year. In addition to acquiring OptoGration, the Company received its one hundredth patent. Which is more than all other pubic LiDAR companies combined.

2. Software & Product Development
LAZR debuted its Proactive Safety software and capabilities. This will be part of Volvo’s standard safety package program for their next generation electric SUV. The Company remains on track to deliver the alpha version of the full-stack Sentinel solution by EoY.

3. Commercial Programs & Customer Adoption
The Company is doubling its major win target from three to six. This is based on accelerated adoption of Luminar for OEM programs.

4. Forward Looking Order Book
Luminar is raising its forward-looking order book growth target to 60% over the prior year. Which is up from the previous target of 40% growth.

5. Liquidity and Cash Position
Luminar holds just over $134 million in cash and equivalents. Largely a result of the special purpose acquisition company (SPAC) merger deal that it completed in late 2020. The Company possesses strong liquidity needed to finance research and production activities.

For more stock-specific articles, check out our Buy List, showcasing some of the top-performing companies in the markets!

The Company continues to win more customers. For instance, its forward-looking order book standing at $1.3 billion at the end of last year. Luminar plans to grow this order book by over 40% this year. The company is expected to begin commercial deliveries next year. It expects to generate revenue of $25 million to $30 million in 2021.

Profitability Metrics

Currently, it’s not applicable as the Company is not profitable at this time. Revenue for 2021E is expected to double year-over-year, to $30.04 million.

Valuation
Valuing Luminar stock is somewhat tricky, given that it hasn’t started commercial operations yet.

With a forward Price:Book ratio of 12.69x, the Company is much more richly valued than the Consumer Discretionary Sector at 3.41x.Risk
Luminar is a growth stock and it has not generated any earnings to date. It has missed on earnings in Q3 2020, Q4 2020, Q1 2021 and Q2 2021.

In addition, the Company also has a fairly sizable short interest percentage of shares outstanding.

Investment Strategy

LAZR popped by 10% on June 24, 2021 after the Company announced its Iris LiDAR and Sentinel Perception software would become standard in Volvo’s successor to the XC90 model in 2022. The stock then peaked at $26.39 on June 8^th before beginning a fairly precipitous decline.

Baird upgraded the Company from neutral to Outperform with a price target of $28.63. Nearly double where the stock is today; trading below $17 dollars.

Wall Street is positive on Luminar Technologies Inc (LAZR). On average, analysts give the stock a Buy rating. The average price target is $27.

Average volume trades around 3.3 million shares. We were looking for a buy-in below $16.00 based upon prior trading; the stock had closed down at $16.43 in April before announcing its partnership with Volvo and rallying. After that, Luminar then traded down to $17.28 for a closing-low in July. We thought there might be some additional selling pressure with new LiDAR names entering the market. Therefore, we have set an entry point of $16.00. The stock traded below $16.00 briefly on September 17^th, down to $15.96 for the intraday low.

LAZR – YTD Stock Chart

LAZR – 3-Month Stock Chart

References
LiDAR
https://driving.ca/car-culture/auto-tech/what-is-lidar-and-how-is-it-used-in-cars

Luminar Technologies Investor Relations Page
https://investors.luminartech.com/

MartketWatch
https://www.marketwatch.com/investing/stock/lazr

Motley Fool Premium
https://www.fool.com/premium/company/NASDAQ/LAZR/

Seeking Alpha Premium
https://seekingalpha.com/symbol/LAZR/earnings?s=lazr

StockCharts.com

WSJ Advanced Charting

Disclosure

The Investor Weekly is long Luminar Technologies (“LAZR”) either through stock ownership, options, or other derivatives. 

I wrote this article myself, and it expresses my own opinions, I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Nothing on this site nor any published commentary by The Investor Weekly is intended to be investment, tax, or legal advice or an offer to buy or sell securities. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and should not be considered a complete discussion of all factors and risks. Data quoted represents past performance, which is no guarantee of future results. Investing involves risk. Loss of principal is possible. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.