November 7, 2024
Wheels Up celebrated its IPO and the first day of trading on the New York Stock Exchange last week. It can also cheer what appears to be a solid report card from Barrington Research’s Gary Prestopino.
Prestopino categorizes investing in the private jet provider as speculative from a suitability/risk perspective. Still, he set a price target of $19 to $21 for his 24-month outlook. That’s double where it is today. An outperform rating is based on several factors. One is an expectation to outperform the S&P 500 over the next 12 months. Next is sound or improving company fundamentals. He also sees potential for a near-term catalyst and that the stock is undervalued at current levels.
“The trends that have come out of the pandemic related to private flying, I think they are going to stay for a while,” Prestopino tells Private Jet Card Comparisons. “There’s been a real shift in spending priorities, and more people who have the means to fly privately are doing so.”
A survey of subscribers to this website earlier this month shows 69% of current private aviation users expect to fly more post-COVID than before the pandemic. Only 3% say they will fly less.
For the most part, the analysis contains numbers and soundbites from Wheels Up’s Investor Day presentation. Prestopino picks up on the opportunity to increase production of the King Air 350i fleet. The turboprops currently average 30 hours per month. The company believes it can get them up to 45 hours of flight time. With surging demand, that should be an interesting number to watch in the coming quarters.
“Can they hit their projections? Can they improve efficiency? We’ll be watching the execution,” Prestopino says. He discloses that accounts he manages are invested in Wheels Up. The analyst says he has had a strong interest in the company since it first disclosed its plans to go public.
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The analysis follows many of the macro factors that will help the market. The principle is the continued growth of high-net-worth individuals, as noted by Capgemini. Then there’s the fact that pre-pandemic, only about 10% were using private aviation, as pointed out by McKinsey, and the trend to more spending on experiential luxury over hard goods like watches and jewelry. By the way, after completing its merger, the company’s official name transitioned from Wheels Up Partners, LLC to Wheels Up Experience Inc.
Prestopino also cites Wheels Up’s democratization efforts, targeting single-digit millionaires and smaller companies, with revenues starting at $20 million. He notes, “Based on a minor increase in average penetration rates in private flying from 6% to 8%, the company believes its addressable market can grow to $80 billion by 2025.”
In terms of the customer profile, he writes, “The company expects to sell more lower-priced Connect memberships ($2,995 initiation fee and annual dues of $2,495) than Core memberships ($17,500 initiation fee and annual dues of $8,500).”
Entry-level flyers buying repositioning flights, sharing with other members, and taking single seats on shuttles, he says, will build network efficiency for Wheels Up.
In terms of boosting revenues, he points to potential acquisitions and international expansion. He notes that the Delta Private Jets and Mountain Aviation additions will bring more maintenance in-house from a cost-savings perspective.
Of course, the prominent theme is leading-edge technology and developing a robust Amazon-like private aviation marketplace. That could unlock private aviation’s potential in a fragmented market, he believes.
Barrington’s revenue and EBITDA projection mirror Wheels Up’s guidance, with revenue reaching $911 million this year and losses dropping to $29 million. A profit of $8 million is forecast for next year on $1.1 billion in revenue. By 2023 profits will rise to $58 million on $1.4 billion on the top line. Prestopino says at an early stage analysts are heavily reliant on company guidance.
In terms of total enterprise value, Prestopino writes, “Wheels Up sells at a discount to both the average 2022 and 2023 multiples of its comp group as well as versus Uber and Lyft. As the company executes on its growth strategy, we believe this discount will narrow in favor of a higher valuation for Wheels Up.”
Prestopino says in addition to the rideshare providers; he compared Wheels Up to Vroom, Carvana Door Dash, and Airbnb.
Among the risks noted in the report is the competitive nature of the market. Other concerns are a supply of pilots, potential unionization, and fuel price increases. With demand surging, dependence on its network of third-party operators beyond its fleet is noted.
There’s an interesting footnote about the relationship with Delta Air Lines, its largest shareholder, and their wide-ranging commercial agreement. “Wheels Up has agreed with Delta that, by December 31, 2021, the company will use reasonable best efforts to mutually agree upon minimum amounts of in-kind benefits required starting in 2022. If Wheels Up is not able to provide the revised minimum amounts of in-kind benefits to Delta in any year starting in 2022, Delta will have the right to terminate the agreement, which would have a material adverse effect on Wheels Up’s business,” the report notes.
It’s hard to say why Delta would want to end its relationship with Wheels Up. However, it would seem Delta customers are likely to see some tangible benefits from the relationship.
In the meantime, if Prestopino is correct, the UP stock ticker is set to soar. For his part, Tip Ranks ranks Prestopino number 85 out of 7,586 analysts. He has a 59% success rate in his rankings with a 43% average return.
So far, Prestopino appears to be the only analyst who has issued research covering Wheels Up. However, he expects that to change soon. “It’s a very interesting segment. The company is going to get a ton of coverage. It’s just a matter of time.”
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