Space tourism could indeed be very lucrative but it’s not an easy feat to pull off. It has been Virgin Galactic’s (NYSE:SPCE) mission, but Richard Branson’s pioneering idea has yet to properly, ahem, take off. Weighing the potential against the reality, Morgan Stanley’s Kristine Liwag takes a balanced view of the company’s prospects.
“We are bullish on SPCE’s long-term potential as a first mover in a structurally high-margin business,” the analyst said, “but our optimism is tempered by the execution track record and steep ramp ahead.”
The stock is off to a good start in 2023 (up 16% year-to-date) but that comes off the back of a miserable 2022, during which it shed 74% of its value. Along with investors losing their appetite for SPACs, Liwag puts the underperformance down to “repeated schedule delays that have eroded investor confidence in company execution, along with tough-to-price risk as the company attempts to scale operations in an unchartered space tourism vertical.”
The fact 2022 was “catalyst lite” did not help either, with the company’s sole mothership (VMS Eve) and operational spaceship (VSS Unity) spending most of the year “undergoing enhancements” and therefore were unable to carry out test flights.
However, that could all be about to change, with the story ready to turn a corner. Following the aircrafts’ “extensive” enhancement programs, which improved durability/reliability so to enable speedier turnaround times between flights, commercial spaceflight operations are expected to kick off in 2Q23. This could “unlock positive stock price momentum.”
However, whether the company hits the target date remains to be seen, with Liwag pointing out the date has been “repeatedly shifted to the right.”
Management is targeting a flight cadence of 1 a month for Unity while the second spaceship, VSS Imagine, is “estimated” to fly twice a month. A next-generation class of spaceships (Delta) is also being developed; once ready for commercial flights around 2026, each Delta is expected to fly once a week.
All considered, Liwag resumed coverage of SPCE with an Equal-weight (i.e., Neutral) rating backed by a $4 price target. The figure suggests the shares are currently overvalued by ~23%. (To watch Liwag’s track record, click here)
Overall, there appears to be a lot of pessimism around SPCE’s potential to pull off its ambitious plan; based on 4 Sells, 2 Holds and 1 Buy, the analyst consensus rates the stock a Moderate Sell. (See SPCE stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.