Red Cat Holdings Inc. (NASDAQ:RCAT) stock gapped lower at Wednesday’s market open after the company disclosed the termination of its chief revenue officer and a related legal dispute. The broader market was mixed, with the Nasdaq rising 0.03% and the S&P 500 gaining 0.21%.
Executive Termination For Cause
According to a Form 8-K filed with the Securities and Exchange Commission on Wednesday, Red Cat’s board of directors determined on Friday to terminate Chief Revenue Officer Geoffrey Hitchcock for cause, effective Thursday.
The board said grounds existed for “Cause” under Section 11(c) of Hitchcock’s executive employment agreement. As a result, the company said Hitchcock is not entitled to severance benefits or accelerated equity vesting beyond salary and benefits earned through his termination date.
Company Denies Allegations
On Tuesday, Hitchcock filed a civil complaint against Red Cat, alleging retaliatory termination under New York and Oregon law, breach of contract and breach of the implied covenant of good faith and fair dealing.
In the filing, Red Cat said it believes the claims are without merit and intends to defend itself vigorously. The company added that it will evaluate potential counterclaims against Hitchcock.
Red Cat Technical Analysis
The technical outlook remains negative.
Red Cat is trading 10.9% below its 20-day simple moving average of $9.06, 22.6% below its 50-day moving average of $10.43 and 28.9% below its 200-day moving average of $11.35. Those levels suggest the longer-term downtrend remains intact.
Momentum indicators also remain weak. The MACD is below its signal line with a negative histogram, indicating selling pressure continues to outweigh buying interest.
The stock also remains below its June death cross, where the 50-day moving average fell below the 200-day moving average.
Traders may watch resistance near $9.50. Initial support sits around $7.00, followed by the 52-week low of $5.77 if selling accelerates.
Earnings And Analyst Outlook
Red Cat is scheduled to report quarterly results on August 6.
Analysts expect the company to report a loss of 18 cents per share, unchanged from a year earlier. Revenue is projected to increase to $22.53 million from $1.53 million a year ago.
Wall Street maintains a Buy consensus rating with an average price forecast of $21.25. Recent analyst actions include:
- Roth Capital initiated coverage with a Buy rating and a $25 price forecast on June 1.
- H.C. Wainwright & Co. initiated coverage with a Buy rating and a $20 price forecast on May 27.
- Needham reiterated its Buy rating and raised its price forecast to $20 on March 19.
Red Cat ETF Exposure
Red Cat is a significant holding in several drone-focused exchange-traded funds, including:
- Defiance Drone and Modern Warfare ETF (NYSE:JEDI): 5.20%
- REX Drone ETF (NASDAQ:DRNZ): 6.36%
- Moonvest ETF (NASDAQ:MNVT): 5.00%
Large inflows or outflows in those ETFs could influence trading activity in Red Cat shares.
RCAT Price Action: Red Cat Holdings shares were down 6.29% at $8.045 at the time of publication on Wednesday, according to Benzinga Pro data.
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