By now you've heard the news: Last week, NASA awarded Intuitive Machines (LUNR +1.10%) a contract to provide "GEO to Cislunar Relay Services" that will relay communications from Earth satellites (in geosynchronous orbits, or GEO) to the moon and back. The contract, which was awarded on Wednesday last week, sparked a massive rally in Intuitive Machines' stock price, which at one point was up 77%.
The stock's given back some of its gains as investors, lucky enough to own it before the news broke, cashed in their profits. But at a share price recently circling $8, the gains remain significant: Roughly 50%.
Here's what you might not know (yet), however: Even after that 50% gain, this space stock is a bargain.
NASDAQ: LUNR
Key Data Points
What Intuitive Machines won
NASA's contract hires Intuitive Machines to "deploy lunar relay satellites and provide communication and navigation services" to support NASA's Project Artemis to return astronauts to the moon. Commenting on the award, Intuitive CEO Steve Altemus explained that the company expects to be paid $150 million initially to develop the communications satellites.
The vast bulk of the contract, $4.8 billion worth, will come later, once the satellites are launched and operating, and NASA begins paying Intuitive to provide communications services between GEO and the moon. NASA will pay the company for "minutes on the network, something like a million minutes a year ... for data transmission and navigation services."
So you can best think of this as a sort of intragalactic cellphone internet plan, with Intuitive playing the role of space ISP to NASA. Ultimately, it will take Intuitive roughly 10 years to earn the entirety of the $4.8 billion award, with the initial five-year contract running through Sept. 30, 2029, and an optional five-year contract (hopefully) being tacked on at the end of that, extending the contract's duration through Sept. 30, 2034.
What this means to investors
For investors wondering if they've missed the train on Intuitive Machines, those dates are important.
Over the course of a 10-year contract, $4.8 billion averages out to an extra $480 million a year in annual revenue -- roughly quadrupling Intuitive's current $158 million-a-year annual revenue stream. But the first, developmental phase of this contract will "only" roughly double the size of the company's revenues.
It's still a gigantic win for Intuitive Machines (and as I argued last week, it marks an expansion of the company's field of business, from lunar payload delivery to interplanetary communications). Yet the wins won't all come at once, but rather be spread out and grow gradually over a decade.
Why Intuitive Machines stock is still a buy
Does the fact that revenues from this contract will grow only gradually, though, mean that investors overreacted in bidding Intuitive Machines stock up so much last week?
The contrary is more likely. Despite the fact that, at $8 a share today, Intuitive Machines stock costs twice the $4 or $5 a share it's averaged for most of this year, I think the stock could actually still be bargain priced today.
Here's why.
Prior to the contract announcement, most analysts polled by S&P Global Market Intelligence didn't expect Intuitive Machines stock to turn profitable before 2026. This was based on the belief that the lunar payload business would need about $475 million in annual sales to turn about a $0.25 per-share profit, and that Intuitive Machines would need a couple more years to hit that revenue target.
Curiously, despite news of the Relay Services contract now being roughly a week old, most analysts still haven't updated their projections for Intuitive Machines stock. They haven't added the extra $150 million in revenue for developing the satellites into their 2025 forecasts. They haven't added any extra revenue for Intuitive Machines selling a "million minutes a year" to NASA to their projections as far out as 2027.
And what this means, quite simply, is that Wall Street's forecasts for Intuitive Machines sales and earnings are wrong. Not only will revenues grow faster than analysts project, profitability will probably arrive faster than expected as well. Maybe not as soon as next year -- but also perhaps yes, as soon as next year.
And those profits will likely grow faster than the projections indicate.
Although we'll probably have to wait for Intuitive Machines' earnings call in November for the details on how management thinks this will play out, it's not too early to start making educated guesses. So here's my back-of-the-napkin math: Assume Intuitive Machines books twice the revenue it's currently supposed to book in 2027, when earnings are projected to be $0.49 per share. In that case, it's not unreasonable to think earnings might be twice the expected amount that year as well -- roughly $1 a share.
If my estimate here is even close to correct, paying $8 a share today for a stock that might earn $1 a share three years from now seems like a pretty nice bargain to me.
