Why This Virgin Galactic Analyst Has Turned Bearish On The Stock

Virgin Galactic Holdings Inc SPCE shares picked up some momentum in the run-up to a successful manned spaceflight in mid-July.

The Virgin Galactic Analyst: Morgan Stanley analyst Kristine Liwag downgraded the shares from Equal-weight to Underweight, with a $25 price target.

The Virgin Galactic Thesis: Virgin Galactic is transitioning from a catalyst-rich period following Sir Richard Branson's flight, to a prolonged period of no flights, analyst Liwag said in a note.

Among the catalysts are FAA approval for flying customers to space following a successful test flight in May, the first fully-crewed test flight in July carrying Branson and the company's announcement in August that it will reopen ticket sales to aspiring spacefarers, with prices starting at $450,000 per seat, the analyst noted.

The stock has climbed about 49% since the flight test on May 22 compared to the 7% gain for the S&P 500, the analyst said.

Related Link: Virgin Galactic Opens Up Space Flights: Here's How Much It Will Cost To Fly To Space Like Richard Branson

Unity 23 is expected to fly to space in September, and subsequently, the company's sole mothership, Eve, will be grounded for an eight-month enhancement period, the analyst said.

After the Unity 23 flight, Virgin Galactic will not be able to conduct any space flights until the summer of 2022 due to the heavy maintenance period, the analyst said.

"We view it positively that the company is investing in increasing its long-term space flight capacity," Liwag said.

These investments will take time, the analyst added.

The shares will likely return toward their long-term valuation of $25, Morgan Stanley said.

SPCE Price Action: Wednesday morning, shares were down 8.39% at $28.70.

Related Link: Why This Virgin Galactic Analyst Remains Bearish

Photo: Virgin Galactic