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Virgin Galactic Stock Falls Back to Earth After Downgrades -- Barrons.com

DOW JONES & COMPANY, INC. 10:10 AM ET 2/27/2020

Symbol Last Price Change
SPCE 19.35 -9.4 (-32.7%)
QUOTES AS OF 10:33:56 AM ET 02/27/2020

Space tourism and technology company Virgin Galactic(SPCE) reported its first quarterly report as a publicly traded company Tuesday evening. Now Wall Street is weighing in as analysts update their numbers and write research reports about the space startup.

Two analysts are recommending that investors take profits, downgrading the stock and sending it plummeting in early trading Thursday. Another analyst, however, says investors would be wise to stick with the stock.

Galactic shares have, well, rocketed. They are up almost 150% year to date and more than 290% over the past three months, as of Wednesday's close. Those figures crush comparable returns of the S&P 500 and Dow Jones Industrial Average over the same spans.

That move is enough for Credit Suisse analyst Robert Spingarn. He downgraded the stock from the equivalent of Buy to Hold on Thursday. Spingarn did, however, increase his price target to $25 from $15.

His call is based on valuation. "We find ourselves no longer able to recommend [Galactic] shares after a [roughly] 185% year to date run (through 2/25) and commensurate expansion in the stock's multiple," Spingarn wrote. Galactic is trading at 21 times his estimated earnings before interest, taxes, depreciation and amortization, or Ebitda.

Analysts look at earnings in 2024 and beyond because Galactic is still an early-stage company. It doesn't generate much in the way of sales and earnings. The next catalyst for the stock, in fact, will be carrying space tourists on the company's first commercial flight aboard Galactic's VSS Unity spacecraft.

Morgan Stanley analyst Adam Jonas also downgraded the stock from the equivalent of Buy to Hold. He also increased his price target, to $30 from $22 a share. It appears to be another call based on valuation.

Vertical Research Partners analyst Darryl Genovesi, however, is more bullish than the other two. He still rates shares Buy and has a $40 price target for the stock. He believes investors buying the stock here are paying for the space tourism business and getting future opportunities, such as government contracts, free.

"We think [Galactic stock is] likely to continue to trade higher over a multi-year time horizon as important milestones are reached and opportunities to grow into adjacent businesses become apparent," Genovesi said in a Thursday research report. "We think the current stock price...embeds just the first spaceport."

Virgin Galactic's (SPCE) spaceport is in New Mexico. It is where the company will ferry its first customers into space.

Genovesi's bull case for Galactic shares is $75 to $80, to be realized if the company builds more spaceports and wins business with the Defense Department the National Aeronautics and Space Administration. What's more, hypersonic commercial travel represents a "lottery ticket," according to the analyst. Hypersonic speeds are about 5 times the speed of sound and Galactic is investing in hypersonic technology for future applications.

Genovesi said the stock's valuation does look "egregious versus other concept/glamour stocks, even if expensive versus other industrials."

Expensive or not, what all three agree on is that Galactic is an exciting concept stock. But that makes it particularly hard for investors, who must try to determine whether all the potential will be turned into profit.

Virgin Galactic (SPCE) shares were down 24% to $21.90 about 20 minutes after the market opened on Thursday.

Write to Al Root at [e-mail]


(END) Dow Jones Newswires
02-27-201010ET
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