Demand Won’t Be an Issue, but Execution Risks Still Linger

Investors were evidently excited by the latest developments at Virgin Galactic (SPCE). Shares took off to the tune of 32% in Tuesday’s trading, after the company said it will start selling tickets to the general public for trips to outer space.

Maybe the “general public” is the wrong wording here. Going gravity free for a time on the 90-minute flight will cost about $450,000 and require a $150,000 deposit. 700 well-heeled customers have already forked out the necessary cash and with tickets on sale from February 16 onward, the company is readying itself for a total of 1,000 customers ahead of commercial operations’ kick off in 4Q22.

Despite the price tag, Morgan Stanley’s Kristine Liwag is in no doubt there will be demand for space flights, rather there are other issues on which the endeavor’s success hinges.

“Additional ticket sales continue to prove that there is demand for space tourism, but do not change the execution risks facing the company,” the analyst said. “We see the core challenge for Virgin Galactic centering on execution of its plans to scale operations to 400 flights per year per spaceport.”

Eve, the company’s lone mothership, is still in its 8-month enhancement period and therefore grounded, enhancements are also still being made to Unity following a series of technical issues, while the development of the Delta-class is ongoing.

Which means Liwag is heeding caution. “Recent schedule delays and potential technical issues highlight the risk that commercialization and high-volume operations could take longer than anticipated,” the analyst noted.

With Eve out of circulation until June, Liwag also highlights the lack of upcoming catalysts; space flights are out of the question so long as Eve is grounded for its enhancement period and until completion nears and commercialization “becomes a near-term reality,” there is little to look forward to. “A wide margin of time between positive catalysts is one of the downsides of coming to market as a pre-revenue enterprise,” the analyst summed up.

Interestingly, though, while Liwag rates SPCE as Underweight (i.e. Sell), given shares are down by 80% over the past 12 months, even after Tuesday’s haul, her $16 price target shows room for 58% growth in the year ahead. It will be interesting to see whether the analyst upgrades her rating or lower her price target over the coming months. (To watch Liwag’s track record, click here)

It’s a similar story amongst the Morgan Stanley analyst’s colleagues. The stock’s Hold consensus rating is based 2 Sells, and 1 Hold and Buy each. However, the gains look good from here; going by the $15 average target, shares will rise 48% over the coming months. (See SPCE stock forecast 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.