“Space, the final frontier…” We all know the Star Trek intro, and it resonates with us for a reason. Space exploration isn’t just about the thrill of adventure or landing people on the moon. It’s about uncovering resources across our solar system. And let’s not forget how crucial low-Earth orbit has become for our digital economy and vital to multiple scientific fields.
This all adds up to real opportunity, as evidenced by SpaceX’s recent launch of 23 Starlink satellites from Cape Canaveral in Florida. But Elon Musk is hardly the only game in town for investors looking to back the future of space exploration. The space exploration sector includes companies both large and small, and investors can find aerospace stocks backing all sorts of activities, from defense-oriented big business to the more mundane work of getting satellites into orbit or getting people from one place to another. Long-term, aerospace has the same potential to forever alter our economy as the introduction of the assembly line, or the internet.
In dollar terms, the US aerospace market alone is estimated to exceed $210 billion annually by 2032, according to Precedence Research, and Wall Street’s analysts are taking notice. Citigroup’s Jason Gursky, who holds a 5-star rating from TipRanks, is an expert on the sector – and looking at current conditions, he’s tagged Boeing (NYSE:BA) and Rocket Lab (NASDAQ:RKLB) as the best aerospace stocks to buy. Let’s take a closer look at both.
Boeing
We’ll start with Boeing, one of the world’s two leading aircraft manufacturers and a major aerospace/defense contractor. The company has been facing severe headwinds, due to several accidents in recent years involving Boeing passenger aircraft; the most recent was the door blowout on a 737 MAX 9 belonging to Alaska Airlines. The resulting aircraft groundings, regulatory investigations, and public discussions of the company’s quality control have not been good for the stock, and shares in Boeing, which were already showing long-term softness, are down approximately 27% so far this year.
Nevertheless, Boeing does have strengths and resources to fall back on. The company’s airliners remain competitive in the global market, with a 42% market share of the global commercial airliner industry – despite the accidents and groundings. Boeing’s delivery numbers in 2023 were sound, with 528 aircraft delivered to customers for the year and recorded 1,576 net orders. This was up from 480 deliveries and 774 new bookings in 2022 and marked Boeing’s third-best year. Looking forward, Boeing has a work backlog of 5,600 commercial aircraft, totaling $520 billion.
Drilling down, 396 of Boeing’s deliveries in 2023 were variants of the 737 family. This missed the company’s initial target of 400 to 450 737 aircraft deliveries – but it exceeded the revised target of 375, set to take account of headwinds. 73 of Boeing’s 2023 deliveries were variants of the advanced 787 Dreamliner widebody aircraft, in line with the goal of 70 to 80 for the year.
On the defense side of the business, Boeing finished 2023 with some news. The company was awarded a contract from the US Air Force for 15 KC-46A Pegasus tankers and was selected by the Canadian military to acquire up to 16 P-8A Poseidon multi-mission patrol aircraft. More recently, in late March, Boeing secured a $96.22 million contract for the purchase of an MH-47G helicopter for the US Special Operations Command. The award is a modification to an existing $404.75 million contract.
In addition to its ability to maintain production and deliveries, Boeing has also been able to deliver on revenues and earnings. The company reported, on January 31, its results for 4Q23, showing $22.02 billion in quarterly revenue – a 10% year-over-year growth and beating the forecast by $940 million. At the bottom line, Boeing saw a net loss of 47 cents per share by non-GAAP measures. While a steep loss, this figure did beat expectations by 32 cents per share. In some other important metrics, Boeing kept up a monthly production rate of 38 737 aircraft and 5 787 aircraft. The company generated $3 billion in free cash flow during the last quarter of 2023.
All of this caught Gursky’s eye, and caused the highly-rated analyst to note Boeing as an undervalued stock with strong growth potential.
“We recommend building positions in the company in light of: 1) Our positive view on the aerospace cycle given airline demand for more fuel-efficient aircraft and the growth of air travel, 2) An eventual improvement in earnings visibility as production quality stabilizes and production rates begin to grow; 3) An eventual improvement in cash flow visibility as the company more wholesomely delivers inventoried aircraft and increases production rates; 4) A defense portfolio that is closer to the end of troubled programs than the beginning; and 5) A valuation scenario that provides a path to a $330 stock price over time should the company achieve its longer-term targets and it trades in-line with our broader coverage universe on FCF yield basis,” Gursky opined.
Quantifying his stance, Gursky puts a Buy rating on Boeing shares with a $252 price target that implies ~33% gain over the next 12 months. (To watch Gursky’s track record, click here)
For the most part, Wall Street agrees with Gursky’s call on the company; Boeing’s Moderate Buy rating is derived from 25 analyst reviews that include 17 Buys, 7 Holds and a single Sell. The shares are priced at $189.77 and their $243.78 average price target suggests a one-year upside potential of ~28%. (See Boeing stock forecast)
Rocket Lab USA (RKLB)
Next up, Rocket Lab, is a private space-launch firm specializing in reusable small-payload launch vehicles. This niche is something new under the sun, a response to customer demand from a range of sources – governments, wireless network providers, satellite photo and surveillance providers, to name just a few – for cost-efficient and effective trips to place small- and micro-sized satellites into low-Earth orbit. Rocket Lab has taken an early strong position in this field with its Electron rocket.
Rocket Lab has been putting payloads into orbit since 2018, and in that time has completed more than 45 launches of the Electron rocket and deployed over 175 satellites. Counting all of the orbital devices sent up, Rocket Lab’s technology has logged more than 150 cumulative years in space. The company’s customers include the usual government contracts – the US military, NASA, DARPA – but also private firms such as Canon and Astro Digital. Rocket Lab has launch facilities in both New Zealand and the US.
In addition to its existing Electron launch vehicle, Rocket Lab is working on new space launch platforms. On the small end is HASTE, the hypersonic accelerator suborbital test electron, a suborbital launch vehicle derived from the Electron rocket and intended to operate as a test bed for payloads of up to 700 kilograms on high-cadence flight test programs.
The company’s more ambitious project is the Neutron rocket, a medium-payload platform designed, like Electron, to be reusable. The Neutron has a design capacity to put a 13,000 kilogram payload into low-Earth orbit, or a 1,500 kilogram payload into a Mars or Venus transfer orbit. Rocket Lab is aiming to have the Neutron rocket ready for launch late this year.
On the financial side, Rocket Lab generated $59.99 million in revenue during 4Q23, the last period reported, and saw an earnings loss of 10 cents per share by GAAP measures. While the revenue total was up 16% year-over-year, it missed expectations by $1.22 million, and the EPS loss figure was a penny worse than had been forecast.
For Gursky, covering Rocket Lab for Citigroup, the key point here is the Neutron program and its upcoming milestones. He sees the company’s existing launch program as solid, and writes, “We expect milestone updates on the development of the Neutron launch vehicle and first flight in 4Q24 to act as catalysts for the stock as they will provide improved visibility on the timing of revenue generation. We also expect further contract awards from both government and commercial customers in the company’s Satellite Systems business to provide investor confidence that customer adoption is accelerating. Finally, US government awards for both the Electron and Neutron launch vehicles over time would bolster the company’s positioning in national security launch and improve the company’s earnings outlook.”
Looking ahead, Gursky rates RKLB shares a Buy, and he puts a $6 target price on the stock to suggest a 46% gain in the coming year.
Overall, Wall Street likes Rocket Lab, and the 10 recent analyst reviews, breaking down 9 to 1 in favor of Buys over Holds, give the stock a Strong Buy consensus rating. The shares are trading for $4.07 and their $8 price target is more bullish than Citi’s view, pointing toward ~96% upside potential on the one-year time horizon. (See RKLB 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.
