If you are on the lookout for space IPOs, this might be a good place to start looking.
Attention, space investors! By now you’ve almost certainly heard about the Proliferated Warfighter Space Architecture (PWSA), the U.S. Space Force’s multibillion-dollar effort to build a constellation of Low Earth Orbit satellites to detect missile launches and relay the information back to U.S. missile defense for a response.
But have you heard about HALO?
Image source: Getty Images.
PWSA grows a HALO
PWSA anticipates launching as many as 700 satellites in several “tranches” to orbit in “transport” (i.e. communication) and “tracking” (i.e. er, tracking) layers all around the Earth. Pretty much everybody who is anybody in space has won contracts by this point: Lockheed Martin (LMT 2.31%) and Northrop Grumman, L3Harris, RTX Corp, and tiny Rocket Lab, too.
But even as PWSA is just getting off the ground and preparing to launch its Tranche 1 satellites to accompany the bare handful of satellites already launched in Tranche 0, it turns out the Space Force is already planning an expansion of the project. And this is where we come to the next space acronym, HALO, which stands for Hybrid Acquisition for Proliferated Low Earth Orbit.
As SpaceNews reports, Space Force’s Space Development Agency late last month selected 19 separate space companies to participate in HALO, which aims to “accelerate the development of satellite technologies” that can be added to PWSA once it’s up and running and conduct “experimental space missions” to see what new capabilities participants can offer. Forty companies in total offered to perform demonstration missions for Space Force, and nearly half of these companies made the cut, being named “prime contractors” that will be allowed to bid for future contracts under the HALO program.
Most of the companies you’ve probably never heard of before — but a few you might. Below I present the full list, with a few suggestions of which of these stocks might be open for investment:
- Airbus U.S. Space & Defense (EADSY -2.33%)
- Apex Technology
- AST Space Mobile (ASTS 2.49%)
- Astro Digital
- Capella Space
- CesiumAstro
- Firefly Aerospace
- Geneva Technologies
- Impulse Space
- Kepler Communications
- Kuiper Government Solutions, a subsidiary of Amazon (AMZN -0.89%)
- LeoStella
- Momentus Space (a relic of the 2021 SPAC race that’s now all but extinct)
- Muon Space
- NovaWurks
- SpaceX
- Terran Orbital, now a subsidiary of Lockheed Martin
- Turion Space
- York Space Systems
By my count, that means there are five companies on this list that are either subsidiaries of publicly traded companies, or public space stocks in their own right — and easy for investors to own if they want to. It also means that Space Force has tapped 14 private companies to participate in HALO, 13 of which are tiny (and one of which, SpaceX, is definitely not tiny).
Small, but with potential
Why mention these NewSpace small fry companies at all, though, when there are larger, more stable stocks to choose from? Companies that, let’s face it, have much greater financial resources with which to develop new technologies and compete for government contracts under HALO?
Because of the law of large numbers: The bigger a company is, the more likely it is to win contracts. That’s simply the nature of government contracting. But the bigger a company is, the harder it is for any single contract to move the needle on that company’s revenues, or generate meaningful profits.
Lockheed Martin, for example, generated nearly $68 billion in profit last year, and earned more than $6.9 billion on its contracts. $40 million in extra revenue would boost its annual sales less than 1% and barely be noticed. (I’ll explain why I picked that number in a moment). At, say, a 10% profit margin, $4 million in extra profit from a HALO contract would add less than $0.02 to Lockheed’s nearly $28 in per-share profit earned last year.
In contrast, winning just a fraction of these amounts could be transformative news to a tiny company like Capella Space, which took in just $12 million in revenue last year, according to data from S&P Global Market Intelligence, or to Muon Space, which as far as we know generated no revenue at all.
According to SpaceNews, each of the companies winning task orders under HALO will be asked to build and launch two satellites within the next 12 to 18 months. And while the value of the contracts has not yet been confirmed, past PWSA contracts have been averaging on the order of $20 million per satellite — meaning anyone who wins a HALO contract could potentially land a $40 million windfall.
That might not be enough to move the needle for a company like Lockheed. But for many of these smaller companies, it could be the kind of contract that puts a start-up on the road to an IPO. To my Foolish eye, that makes HALO a Space Force competition worth watching.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Smith has positions in Rocket Lab USA. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends L3Harris Technologies, Lockheed Martin, RTX, and Rocket Lab USA. The Motley Fool has a disclosure policy.