Morgan Stanley has adjusted its outlook on Virgin Galactic (NYSE: SPCE), significantly reducing the aerospace company's price target from $35.00 to $5.00. The firm maintained its Underweight rating on the stock.
The adjustment follows Virgin Galactic's announcement that commercial flights would be on hold until approximately 2026.
The company's stock has experienced a substantial decrease in value year-to-date, plunging by roughly 85%. This decline is attributed to growing investor concerns regarding the feasibility of Virgin Galactic's business model and the economic attractiveness of its plans, which hinge on the timely and cost-effective delivery of a new fleet.
Morgan Stanley's stance remains cautious during what it refers to as a "catalyst-light period," indicating a lack of significant upcoming events or milestones that could potentially drive the stock's performance in the near term.
The firm's commentary sheds light on the challenges Virgin Galactic faces, with its business prospects tied closely to its ability to adhere to its fleet delivery schedule and manage costs effectively.
In other recent news, Federal Communications Commission Chair Jessica Rosenworcel has called for increased competition in the satellite internet sector, currently led by SpaceX's Starlink project.
Starlink, which controls nearly two-thirds of all active satellites, has launched roughly 7,000 satellites since 2018. Rosenworcel's comments underscore the importance of inviting more space actors to foster innovation and potentially improve services for consumers.
On a different note, Virgin Galactic has announced significant progress in the development of its Delta Class spaceships during its second-quarter earnings call. The company is advancing from the design phase to the build and test phases and aims to launch commercial operations by 2026. Virgin Galactic projects substantial revenue growth, with an annual revenue target of $450 million with its initial fleet, possibly reaching $2 billion as its fleet and spaceports expand.
Despite facing smaller supply chain issues and reporting negative free cash flow of $114 million in Q2, Virgin Galactic maintains a strong financial position. The company has raised $394 million through equity offerings and holds a robust cash reserve, indicating a positive outlook for future operations.
InvestingPro Insights
Amidst the market's reaction to Morgan Stanley's revised outlook on Virgin Galactic, InvestingPro data offers additional context for investors. With a market cap of $203.94 million and a striking revenue growth of 175.51% over the last twelve months as of Q2 2024, the company's financial position shows a mix of strengths and challenges. Notably, the Price / Book multiple stands at a low 0.52, which might attract investors looking for potentially undervalued stocks.
However, Virgin Galactic is currently grappling with significant financial hurdles, as evidenced by a negative gross profit margin of -829.67% and an operating income margin of -4068.95% over the same period. These figures underscore the company's operational inefficiencies and the costs associated with its ambitious spaceflight endeavors.
From an investment standpoint, Virgin Galactic holds more cash than debt on its balance sheet, as highlighted by one of the InvestingPro Tips. This could provide some cushion against financial strain. Additionally, four analysts have recently revised their earnings expectations upwards for the upcoming period, suggesting a potential shift in sentiment about the company's future earnings potential.
For those interested in further analysis, there are 18 additional tips available on InvestingPro, offering a comprehensive evaluation of Virgin Galactic's financial health and market performance.
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