Virgin Galactic: Strong Demand Waiting for Supply

Patience is a key ingredient for success at the investing game. Jefferies’ Greg Konrad thinks it is an approach investors should buy into when considering the case for Virgin Galactic (SPCE).  

“While we acknowledge near-term lacks catalysts,” the analyst said, “The long-term potential is an attractive value proposition given a growing commercial space tourism market.”

In fact, more than anything, the analyst believes the company’s problem is one where the supply is waiting to “catch up with demand.” That problem should be rectified toward the end of next year, after the company completes modifications for the mothership Eve and the VSS Unity and when commercial space tourism flights should kick off.

Meanwhile, Virgin has added 100 customers since the September sales relaunch, to reach a backlog of 700 reservations, which Konrad believes indicates “the resiliency of pricing,” with the ASP (average selling piece) up from the previous $250,000 to $450,000 for new customers. The target is to reach 1,000 signups ahead of the commercial launch at the end of 2022.

Over the long run, the company is targeting 400 flights a year per spaceport but that will only be possible with the introduction of the Delta class, for which over the next several quarters, the focus will be on ramping the engineering and support team. The next iteration’s benefits include a faster turnaround (1-week compared to the VSS Unity’s typical 4- to 5-week turnaround) and serial production, which will enable the fleet’s expansion with each Delta class spaceship possibly bringing in 50 flights a year.

“The business model is simple,” says Konrad, “More customers + more spaceships to meet demand drives top-line growth.”

By 2025, the analyst estimates the fleet will include four spaceships, generating revenue of ~$324 million. By 2030, this should grow to 14 spaceships and revenue of $1.7 billion, based on 3,360 passengers.

All in all, Konrad stays with the bulls, reiterating a Buy rating along with a $30 price target. This figure implies ~71% upside from current levels. (To watch Konrad’s track record, click here)

Konrad’s price objective is in line with the Street’s target but rating wise the paths diverge; based on 5 Buys, 2 Holds and 3 Sells, the analyst consensus views SPCE as a Hold. (See SPCE stock analysis on TipRanks)

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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.