Virgin Galactic Soars After FAA Clears Flight, But This Analyst Remains Bearish

Virgin Galactic Holdings Inc SPCE shares soared 13% on Thursday after the Federal Aviation Administration (FAA) cleared the company to resume lights. However, Bank of America analyst Ronald Epstein remains bearish on Virgin and said the stock’s valuation is “largely unaffected” by the news.

What Happened? The FAA gave Virgin the all-clear on Wednesday evening after grounding the company’s operations earlier in September. The grounding came after the FAA learned Virgin had deviated from its restricted airspace during a test flight on July 11.

In a statement, the FAA said it's satisfied with changes Virgin has implemented to its communications protocols during flights.

Related Link: Why This Virgin Galactic Analyst Just Cut Their Price Target By Nearly 40%

Why It’s Important: Virgin shares traded as high as $62.80 back in February when the stock became one of the most popular social media meme stocks of the year. The stock tanked in July after Virgin followed up a successful spaceflight by founder Sir Richard Branson with a $500 million share offering.

The FAA grounding in early September applied even more pressure to Virgin shares, which traded as low as $22.53 in recent days before Thursday’s big rebound.

Despite the near-term excitement, Epstein said very little has changed about Virgin’s fundamental outlook or its valuation.

“While these modifications are a step in the right direction and should be priced into the stock, we stand by our valuation given that it is based on a long term DCF which is largely unaffected by this news,” Epstein wrote in a note.

Virgin generated a $644-million net loss on less than $300,000 in revenue in 2020, and Epstein is projecting just $46 million in revenue in 2023.

Bank of America has an Underperform rating and $25 price target for Virgin.

Benzinga’s Take: Commercial space flight may be a major profit generator and an excellent opportunity for investors at some point, but Virgin’s $6.7 billion valuation suggests years and years of growth are already priced into the stock. In the meantime, the company will likely continue to dilute investors as it raised much-needed capital to build up its business.