Sarcos Robotics (STRC) Has Potential, Good Buy After ROT Merger

In April, Sarcos Robotics and Rotor Acquisition (ROT) announced that they would merge and SPAC ROT would take Sarcos public. On Sept. 15, the business combination was approved by ROT shareholders. The combined entity is expected to start trading on Sept. 27 on Nasdaq under the ticker symbol "STRC." What is Sarcos Robotics' (STRC) forecast after the ROT merger?

Sarcos is trying to fill the growing shortage of skilled workers that are able to conduct physically demanding tasks. It aims to do this by bringing highly dexterous mobile robotic systems to unstructured work environments. The company’s mobile robotic systems, include the Guardian S, Guardian GT, Guardian XO, and Guardian XT, which are designed to revolutionize the future of work.

The transaction will provide the combined company with more than $260 million in gross proceeds, including $220 million from PIPE. The money will be used to fund the company through scale production and deployment of its industrial avatar and industrial exoskeleton system.

The combined company is being valued at an enterprise value of $1.3 billion. Based on the company’s EBITDA projections, its EV-to-2025 EBITDA multiple is 1.7x. Based on the company’s own estimates, the valuation is much lower than disruptive category creators’ 24.6x 2025 multiple as well as the recent hardware de-SPAC 2025 multiple of 11.7x.

Sarcos’ products are futuristic. The company has a 5G aspect as well, which it has developed in partnership with T-Mobile. This brings speed and immediacy to vision and control, which are important in real-world scenarios with high-risk activities.

The company sees an annual target market of $147 billion in the U.S. alone. The applications for Sarcos’ technology transcend across industries, which gives it a large and expanding addressable market. The autonomous robot market is still in the early stages and could provide the involved companies a large opportunity.

The autonomous robot market has also excited the likes of Elon Musk, who unveiled a humanoid robot at Tesla’s AI day in August. The Tesla Bot is designed to eliminate dangerous, repetitive, and boring tasks.

Sarcos remains on schedule for commercial availability of Guardian XT systems by the end of 2022. It has already conducted multiple successful field demonstrations of real-world industrial use cases for its Guardian XT robotic system. The initial feedback from customers has been positive. This year, Sarcos Robotics was recognized by IEEE Robotics and Automation Society when it was named the Product Innovation Award Winner for its Guardian XO full-body wearable industrial exoskeleton robot.

Sarcos has provided projections for its financials in its investor presentation. According to the presentation, the company should become free cash flow positive by 2023. Sarcos has an impressive list of investors including Palantir, Caterpillar, and BlackRock, which provides an additional level of credibility to the company.

After the shareholder approval for the merger, ROT stock hit a high of $11.12. The stock has since dropped by nearly 10 percent to trade almost in line with its list price. The current price provides an attractive risk-reward profile for the stock.