UBS Upgrades Virgin Galactic, Sees String Of Bullish Catalysts Ahead

Virgin Galactic Holdings Inc SPCE shares traded higher by another 4.2% on Friday after the stock landed a major Wall Street upgrade.

The Analyst: UBS analyst Myles Walton upgraded Virgin Galactic from Neutral to Buy and cut his price target from $40 to $36.

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The Thesis: In the upgrade note, Walton said Virgin’s valuation once again looks attractive following the stock’s more than 60% drop over the past three months.

Much of the sell-off came on news that Virgin would be bumping back its scheduled power flight test by about nine weeks due to electromagnetic interference. May 22 is now the current target for the first flight from Spaceport America.

Virgin is now planning for three additional flights over the next four months, after which ticket sales should reopen, which Walton said should be a catalyst for the stock in the second half of 2021.

Walton said the steep sell-off in Virgin shares was exacerbated by aggressive insider selling, but additional insider selling appears unlikely in the near-term given the stock’s next lockup date doesn’t come until October.

Walton is expecting initial tickets to be priced in the $300,000 to $400,000 price range, and demand for Blue Origin tickets seems to suggest plenty of demand even at high price points.

“Importantly, Blue Origin's early move to launch a paying customer in July 2020 deserves notice, but their early approach seems more reinforcing of space tourism economic potential than anything else, with over 5,000 bidders from 130+ countries in the first days of an auction and a first seat current bid at ~$3M (vs. our modeled $300k/pax price point),” Walton said.

He said his updated $36 price target for Virgin stock is based on luxury/experiential multiples applied to normalized 2025 operations.

Benzinga’s Take: The last few months have emphasized that Virgin Galactic is one of the highest-risk stocks in the market with the largest potential long-term upside. Commercial space flight is still in its nascent stage, so it remains to be seen which companies will emerge as market leaders and which ones will be left in the dust.

(Photo: Virgin Galactic)