Investors have expressed a keen interest in aerospace industry stocks following Virgin Galactic’s successful space flight. This flight has given rise to the possibility that Virgin Galactic could be successful in establishing a commercial suborbital human spaceflight market.
Using the TipRanks stock comparison tool, let us compare two aerospace companies, Virgin Galactic Holdings and Boeing, and see how Wall Street analysts feel about these stocks.
Virgin Galactic Holdings (SPCE)
On July 11, Virgin Galactic successfully completed its first test flight with a full cabin crew, including the company’s founder, Sir Richard Branson. The spaceflight, VSS Unity, reached space at an altitude of 53.5 miles.
Richard Branson stated after the flight, “Our mission is to make space more accessible to all. In that spirit, and with today’s successful flight of VSS Unity, I’m thrilled to announce a partnership with Omaze and Space for Humanity to inspire the next generation of dreamers. For so long, we have looked back in wonder at the space pioneers of yesterday. Now, I want the astronauts of tomorrow to look forward and make their own dreams come true.”
At the end of Q1, SPCE had received reservations for around 600 spaceflight tickets and had collected more than $80 million in future flight deposits.
Interestingly, on July 20, Amazon (AMZN) founder Jeff Bezos’ privately funded company, Blue Origin, will also launch its first New Shepard flight with astronauts, including Jeff Bezos, on board. SPCE considers Blue Origin as its primary competitor.
Shares of Virgin Galactic have tanked 12% in the past five days, as following the successful space flight, the company stated in a filing that it is looking to sell up to $500 million worth of common stock.
The company intends to use net proceeds from the offering for working capital, general, and administrative purposes. Part of the funds will also go towards financing the development of the company’s spaceship fleet, among other infrastructure developments. (See Virgin Galactic stock chart on TipRanks)
Following the successful space flight and the announcement of a stock sale of $500 million, Cowen & Co. analyst Oliver Chen reiterated a Buy with a price target of $51 (25.3% upside) on the stock. Chen said in a note to investors, “Cowen believes SPCE has reached important milestones toward realizing its LT [long term] growth potential, and we view today’s pullback as a buying opportunity.”
“SPCE is to issue up to $500M of shares, which will drive attractive liquidity, and we believe SPCE will continue to focus on scaling its fleet manufacturing. A key catalyst ahead is the reopening of ticket sales, & we expect substantial price raises,” Chen added.
SPCE has not earned any revenues so far but at the end of Q1, the company’s cash position remained strong with cash and cash equivalents of $617 million. The company’s net loss in Q1 narrowed to $130 million from $377 million in the same period last year.
Consensus among analysts on Wall Street is a Moderate Buy based on 4 Buys, 6 Holds, and 1 Sell. The average Virgin Galactic price target of $36.90 implies approximately 9.3% downside potential to current levels.
Boeing’s Defense, Space, and Security (BDS) business segment is engaged in the research, development, production, and modification of manned and unmanned military aircraft and weapons systems. This segment also produces space and missile systems.
BDS’s primary customers include the United States Department of Defence (U.S. DoD) and the National Aeronautics and Space Administration (NASA).
It is important here to note that Virgin Galactic has stated in its filing that while companies like SpaceX and Boeing are currently “focused on providing orbital spaceflight transportation to government agencies, a fundamentally different product from ours, we cannot ensure that one or more of these companies will not shift their focus to include suborbital spaceflight and directly compete with us in the future.”
In Q1, the BDS segment had revenues of $7.2 billion, up 19% year-over-year with an operating margin of 5.6% versus an operating margin loss of 3.2%. At the end of Q1, BDS had an order backlog of $61 billion, out of which 31% were orders from customers outside the United States.
Boeing stated in its company filing that in April, the Office of Management and Budget released the U.S. President’s budget request for FY22, which includes $24.7 billion in funding for NASA and $715 billion in funding for the Department of Defense. Those appropriations include funding for Boeing’s major programs. (See Boeing stock chart on TipRanks)
However, considering that the detailed budget documentation has not yet been released, “there continues to be uncertainty with respect to requested funding levels for individual programs.”
On July 7, Robert W. Baird analyst Peter Arment reiterated a Buy and a price target of $306 (28.4% upside) on the stock. The analyst stated that based on Baird’s proprietary checks, it is assumed that BA has delivered 77 aircraft in Q2, and that is in-line with Arment’s reduced expectations.
When it comes to BDS, Arment added, “BDS’ history of execution and solid performance on programs such as the F/A-18, V-22, F-15, Chinook, Apache, and P-8 aids its ability to offer significant value to the customer and avoid major program cuts. Further, BDS continues to focus on growth in higher-value verticals like support services, and adjacent markets such as Cyber, Energy Services and ISR.”
Consensus among analysts on Wall Street is a Moderate Buy based on 9 Buys and 7 Holds. The average Boeing price target of $274.21 implies approximately 15.1% upside potential to current levels.
Bottom Line
While analysts are cautiously optimistic about both Virgin Galactic and Boeing, based on the upside potential over the next 12 months, Boeing seems to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
